Saturday Night Live or SNL for short, has been a mainstay of American comedic television for over 30 years. Best known for its inventive original skits superb cast of all star comedic acting talent, it is often remarked that the show quality ebbs and flows over time, an undisputed mainstay throughout its years has been the its political satire sketch comedy such as weekend update . Thus naturally come election years or major news stories they often hit proverbial comedic gold! The mixture of wonderful writing, quality actors, and dialogue typically so close to the real thing it is both frightening to contemplate how poignant the parody but also so funny the audience is left in stitches.

SNL has hit in the past—recall Dana Carvey’s impression of Bush I—but most recently notable have been the instant classic sketches featuringTina Fey portraying Republican Vice Presidential Nominee Sarah Palin in an impression that can only be called ‘uncanny’ in a Palin-Clinton Speech, a Palin-Couric Interview, and the Biden-Palin VP debate (complete with Queen Latifa playing Gwen Ifill). Thus far all three sketches have been major headline news on every network come the following Monday morning, drawing many viewers back to SNL again. Fueling this surge is the high accessibility of recent SNL skits on the internet placed there directly by NBC itself.

On Saturday October 4, 2008 SNL presented a skit titled “Washington Approves the Bailout” focusing on many of the ludicrous aspects of the current economic situation. The sketch instantly became a hit with links to the official NBC posting of the video appearing all over the web almost immediately. Then suddenly chaos ensued. Withing a matter of hours on a lazy Sunday mid-day as citizens awoke and checked their digital communications, countless numbers clicked on links sent by a friend, family member, or co-worked promising a hilarious video, only to be met with a cryptic message that the sketch was no longer available and apologizing for the inconvenience. Instantly as the so commonly do, conspiracy theories began to run wild. For two days one in the know would hear every theory from space aliens to the illuminati. Then finally on Tuesday afternoon the truth broke and a now far less funny, edited version was put back up on the internet by NBC. Unfortunately for the American public, the truth was far more sinister than Martians or Free Mason wannabes. The truth was that NBC lawyers had pulled the sketch. Though NBC officially did not mention this in their statement:

“Upon review, we caught certain elements in the sketch that didn’t meet our standards. We took it down and made some minor changes and it will be back online soon.”

Apparently the sketch’s portrayal of Herb and Marion Sandler was considered a liability since it pointed out their acts of corrupting US Government officials and their severe culpability in the current financial meltdown affecting the US. Additionally as a faux C-SPAN video SNL had a chyron on-screen text shown below the Sandler lookalikes that would normally serve to identify the subject on-screen stating: “Herbert & Marion Sandler: People who should be shot”. Supposedly this is to be part of the basis of the video edit, as it may be misconstrued as a death threat to some people and/or offensive.

Now this is not the first time that SNL has turned against one of its funniest components. Norm MacDonald was fired from his stellar and unparalleled stint as the anchor of the weekend update sketch for making too many side splitting hilarious OJ Simpson jokes. Do not worry if you are confused, you are not alone. Many fans and casual watchers alike have asked themselves why a comedian would be fired for raising a dieing show’s ratings by making hysterical jokes at the expense of a public figure who is himself, well…. a joke. The answer was unfortunately the same then as it is in now in the case of the Bailout Sketch: NBC Cronyism and Politically Correct Cowardice.

Thus an entire American populace is left one step closer to an Orwellian Nightmare in which our right to speech and thought even as basic as humor is subject to regulation by the State at the whims of the ruling oligarchical elite. That is unless a line is drawn in the proverbial sand, saying “This far and no further”. For those looking to stand up and fight back by saying “NO!” to the tyranny of the minority, by saying “NO!” to those who would tell you how to think and how to laugh; stand up and wave the banner of Free Thought high in the sky. Spread the UNEDITED VERSION as far and wide as you can. Show it to your parents, siblings, spouse, grandparents, cousins, friends, co-workers, and to anyone you possibly can. The sketch is downright hilarious to anyone with a single drop of a sense of humor in their entire body, and (based on the talk of the town prior to the pulling and editing of the video) the quote “people who should be shot” is one of the most memorable gems of the bit. So much so in fact that to one who has seen the original, the edited version leaves one feeling quite dissatisfied. Make sure that the memories of original version Do Not Go Gentle into That Good Night! Together it is possible to prevent NBC from pulling a Lucas on this classic!

Ultimately it is a matter of “How dare NBC!?!”. How DARE they back off from calling a spade a spade? How dare they a non-news organization try to hold themselves to a journalistic standard when speaking about the rich and powerful whom have destroyed people’s lives (some figuratively others literally)? How dare they back down from vilifying scumbags who wrecked the entire world economy so that they could glean a few extra shiny nickels! To paraphrase from one SNL’s own skits, I invite them to grow a pair, and if they can’t, I will lend you mine. So in case anyone else is looking to make a bumper sticker or t-shirt:

...because NBC doesn't have the juevos!

...because NBC doesn't have the juevos!

Not too long ago I posted a rant entitled Primum Non Noncere which challenged Congress not to bulk up the financial markets bailout bill with a plethora of special interest and party agenda items. I mentioned that when a heart surgeon is operating on a heart attack victim, he doesn’t request his OR techs to do a manicure.

Sadly, it seems they can’t help themselves. The bailout bill has passed, and quite a manicure it is — over $3 BB in non-associated spending. Non-associated in any conceivable way to the financial crises. 451 pages. Quite a change from the 10-12 pages of the original request from Secretary Paulson. The Emergency Economic Stabilization Act of 200 (H.R. 1424) is a masterpiece.

Division A is the section providing for emergency economic stabilization. The purpose is to enable the Treasury to restore liquidity in the financial system insuring that any action (A) protects home values, college funds, retirement accounts, and life savings; (B) preserves homeownership and promotes jobs and economic growth; (C) maximizes overall returns to the taxpayers of the United States; and (D) provides public accountability for the exercise of such authority. Good luck with that.

So to do this we are creating the Financial Stability Oversight Board. Who is on this board? The usual suspects: the Chairman of the Fed and the board of governors (FOMC), the Secretary of the Treasury, the Head of the SEC, the head of the FHA, and the Head of HUD. Basically the same organizations which were responsible for getting us into the mess in the first place.

At least section 132 provides statutory authority to suspend FASB 157 “mark-to-market” rules.

Division B implements the “Energy Improvement and Extension Act of 2008”. Here we have a list of energy related provisions essential to stabilizing our financial markets .

Sec. 101. Renewable energy credit.
Sec. 102. Production credit for electricity produced from marine renewables.
Sec. 103. Energy credit.
Sec. 104. Energy credit for small wind property.
Sec. 105. Energy credit for geothermal heat pump systems.
Sec. 106. Credit for residential energy efficient property.
Sec. 107. New clean renewable energy bonds.
Sec. 108. Credit for steel industry fuel.
Sec. 109. Special rule to implement FERC and State electric restructuring policy.
Sec. 111. Expansion and modification of advanced coal project investment credit.
Sec. 112. Expansion and modification of coal gasification investment credit.
Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
Sec. 114. Special rules for refund of the coal excise tax to certain coal producers and exporters.
Sec. 115. Tax credit for carbon dioxide sequestration.
Sec. 116. Certain income and gains relating to industrial source carbon dioxide treated as qualifying income for publicly traded partnerships.
Sec. 117. Carbon audit of the tax code
Sec. 201. Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plant property.
Sec. 202. Credits for biodiesel and renewable diesel.
Sec. 203. Clarification that credits for fuel are designed to provide an incentive for United States production.
Sec. 204. Extension and modification of alternative fuel credit.
Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
Sec. 206. Exclusion from heavy truck tax for idling reduction units and advanced insulation.
Sec. 207. Alternative fuel vehicle refueling property credit.
Sec. 208. Certain income and gains relating to alcohol fuels and mixtures, biodiesel fuels and mixtures, and alternative fuels and mixtures treated as qualifying income for publicly traded partnerships.
Sec. 209. Extension and modification of election to expense certain refineries.
Sec. 210. Extension of suspension of taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.
Sec. 211. Transportation fringe benefit to bicycle commuters.
Sec. 301. Qualified energy conservation bonds.
Sec. 302. Credit for nonbusiness energy property.
Sec. 303. Energy efficient commercial buildings deduction.
Sec. 304. New energy efficient home credit.
Sec. 305. Modifications of energy efficient appliance credit for appliances produced after 2007.
Sec. 306. Accelerated recovery period for depreciation of smart meters and smart grid systems.
Sec. 307. Qualified green building and sustainable design projects.
Sec. 308. Special depreciation allowance for certain reuse and recycling property.
Sec. 401. Limitation of deduction for income attributable to domestic production of oil, gas, or primary products thereof.
Sec. 402. Elimination of the different treatment of foreign oil and gas extraction income and foreign oil related income for purposes of the foreign tax credit.
Sec. 403. Broker reporting of customer’s basis in securities transactions.
Sec. 404. 0.2 percent FUTA surtax.
Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.

And then there’s Division C titled “Tax Extenders and Alternative Minimum Tax Relief Act of 2008” which include:

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 103. Increase of AMT refundable credit amount for individuals with longterm unused credits for prior year minimum tax liability, etc. Or we could just kill the AMT act.
Sec. 201. Deduction for State and local sales taxes.
Sec. 202. Deduction of qualified tuition and related expenses.
Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 206. Treatment of certain dividends of regulated investment companies.
Sec. 207. Stock in RIC for purposes of determining estates of nonresidents not citizens.
Sec. 208. Qualified investment entities.
Sec. 301. Extension and modification of research credit.
Sec. 302. New markets tax credit.
Sec. 303. Subpart F exception for active financing income.
Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations.
Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands. Congress likes its rum, the pirates.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 310. Extension of mine rescue team training credit. Huh?
Sec. 311. Extension of election to expense advanced mine safety equipment. Oh! Pennsylvania is a contested state.
Sec. 312. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. Gotta get them Hillary votes also.
Sec. 313. Qualified zone academy bonds.
Sec. 314. Indian employment credit.
Sec. 315. Accelerated depreciation for business property on Indian reservations. Casinos contribute heavily.
Sec. 316. Railroad track maintenance.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility. ?
Sec. 318. Expensing of environmental remediation costs.
Sec. 319. Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320. Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321. Enhanced deduction for qualified computer contributions.
Sec. 322. Tax incentives for investment in the District of Columbia.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds. This is just wierd.
Sec. 401. Permanent authority for undercover operations. I think we need to look close at what’s going on under the covers here.
Sec. 402. Permanent authority for disclosure of information relating to terrorist activities.
Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502. Provisions related to film and television productions. Hollywood contributes.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children. WTF?
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505. Certain farming business machinery and equipment treated as 5-year property.
Sec. 506. Modification of penalty on understatement of taxpayer’s liability by tax return preparer.
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer to abandoned mine reclamation fund.
Sec. 702. Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding.
Sec. 703. Reporting requirements relating to disaster relief contributions.
Sec. 704. Temporary tax-exempt bond financing and low-income housing tax relief for areas damaged by Hurricane Ike.
Sec. 706. Losses attributable to federally declared disasters.
Sec. 707. Expensing of Qualified Disaster Expenses.
Sec. 708. Net operating losses attributable to federally declared disasters.
Sec. 709. Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710. Special depreciation allowance for qualified disaster property.
Sec. 711. Increased expensing for qualified disaster assistance property.
Sec. 712. Coordination with Heartland disaster relief.
Sec. 801. Nonqualified deferred compensation from certain tax indifferent parties.

In addition, this bill implements the “Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008” which mandates health insurers provide parity for mental health claims at the same rate as other health claims. This particular bill was 12 years in the making. Clearly a critical piece of legislation for the survival of our financial system.

“The tree of capitalism must be refreshed from time to time with the
blood of investors and bankers.” — Angry Political Optimist

 

James Burke once wrote, in an essay entitled “Fit to Rule”, that the modern world was connected to root events having to do with Linnaeus. His penchant to catalog and organize nature led to Darwin’s Galapagos trip; and from that Karl Mark derived his economic theories giving rise to Communism. Nietzsche’s interpretation, itself misinterpreted, philosophically enabled Nazism and Hitler and the “manifest destiny” derivative in the hands of J. P. Morgan and Getty gave rise to capitalism. Finding root causes is always an interesting journey. So when one looks around today, especially with politicians eager to cast the blame on others, it’s good to try and establish what exactly the root cause of the current fiscal mess might, in fact, be.

The story begins in 1933 at the end of the Great Depression with the passing of the Glass-Steagall Act by Congress (F.D. Roosevelt administration) which prohibited banks from selling investments and created firewalls between investment banking, commercial banking and insurance. Soon after, in order to resolve the mismatch in maturities in loans, and because banks couldn’t loan enough to support the post WWII baby boom, the Federal National Mortgage Association or “Fannie Mae” was created as part of the New Deal in 1938 (FDR administration) to provide a secondary market for mortgages. This organization purchased loans from banks which then allowed them to continue to service and lend. And all was good — the greatest generation prospered.

For thirty years, FNMA had a near monopoly on the secondary market, then, in 1968, FNMA was privatized by L.B Johnson because of Vietnam War fiscal pressure. Now, as a private entity, FNMA could generate profits, yet FNMA still obtained special treatment under regulatory and tax laws. As a consequence of this, investors perceived minimal risk in the company. In 1970, the Federal Home Loan Mortgage Corporation (FHLMC) or Freddie Mac, was created under the Emergency Home Finance Act. The FHLMC purchased mortgages on the secondary market, aggregated, tranched, and sold them as asset backed securities (ABS). Between them, FNMA and FHLMC was estimated to hold approximately 90% of all US mortgages accounting for 46% of the national debt.

Then Congress exempted FNMA and FHLMC from the FDIC Bank Holding Company Act capital/asset ratio reserve limit of 3%. Fannie and Freddie were free to leverage their assets. In 1999, the Graham-Leech-Bliley Act, supported by Robert Rubin (Clinton-Administration) repealed the 1933 Glass-Steagall Act and allowed banks to invest in securities, offer securities, and a cafeteria of financial services. This provided an immediate market for FNMA stock, especially as these shares were considered low risk investments and were returning high returns on investment. The 1995 interpretive letter approving low income mortgage securities as viable investments under the 1977 Community Reinvestment Act (12 CFR parts 25, 228, 345, and 563e) provided another market for FNMA. Commercial banks could now invest CRA dollars in FNMA legally. In 1992 Congress (H.W. Bush administration) mandated (GAO report number GAO-04-269T) that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers and specified that approval metrics such as the ratio test should henceforth include unemployment and welfare payments as sources of income. HUD (Clinton administration) established ‘quotas’ for FNMA and FHLMC to insure 50% of all their loans be to minorities by 2001. Since FNMA and FHLMC are secondary markets, they pressured originating banks to offer more minority loans.

(The story accelerates to Internet time.) FHA regulations are written with loopholes that allows 0% down-payment mortgages. Down payment assistance market develops to exploit the loophole. The Zero Down Payment Act of 2004, introduced by Rep. Pat Tiberi (R-OH) (G.W. Bush administration), requires the Federal Housing Administration (FHA) to offer federally insured mortgage loans to certain eligible households to buy a house without a down payment. In 2005, FNMA revises its loan approval criteria to support post hurricane rebuilding.

The Rating Reform Act of 2006 passes into Law requiring the use of “Nationally Recognized Statistical Rating Organizations” or “NRSROs”. As a result, internal credit analysis at investment banks deteriorate. In 2007, FASB 157 is imposed on corporations requiring that assets be marked to market. Also in 2007, the Office of Federal Housing Enterprise Oversight (OFHEO) increased the FNMA conforming loan limit upwards to $729,750. This increase in allowed principle increased profit for FNMA. All these regulations and acts let FNMA and FHLMC offer securities at net interest margins that were extremely profitable. FHA mortgages with 0% down make it impossible for banks to compete. Banks have to match terms in order to compete. Financial houses have to develop new instruments in secondary markets to compete with FNMA and FHLMC.

At this point the dominoes are all aligned and ready to go. Backtrack in time slightly and pick up a second parallel thread. Two events occur: investors realize that a few lines of software, a pretty business plan, and a catchy name do not a market make; and two planes make unauthorized landings into downtown Manhattan. The 1-2 punch of the Internet bubble bursting and 9/11 sends the economy into a recession. The Federal Open Market Committee (“Fed”) ratchets interest rates lower and makes a horrible mistake, leaving them low for far too long. Liquidity is generated with nowhere to go since money markets and deposits are generating low returns. Well, there is always real estate.

Quants on Wall Street create new classes of securities to access this liquidity — Collateralized Mortgage Obligations (CMOs) and Structured Investment Vehicles (SIVs). Quants are not stupid and know that these are risky, so they create credit default swaps (CDSs) to cover and distribute the risk. Markets develop to trade these instruments. Purchases go global. Trillions of dollars are traded in these vehicles.

With easy money and low interest loans, more houses are constructed, exceeding the number of available buyers, even at 0% down. The value of real estate drops on market fundamentals (law of supply and demand). The underlying value of mortgages drop. Loans are valued at more than the house or real estate they are collateralized with. Because many houses were purchased on speculation, and the dollars invested are essentially zero, owners walk way leaving banks with securitized assets that are non-producing. The primary cascade starts.

As underlying values tank, derivatives such as CMOs and SIVs collapse and swap liabilities under CDS’s increase. FASB 157 requires assets to be marked to market and assets are devalued accordingly. As assets are devalued, new capital to make up the difference is required. However, the complex interconnection of derivatives and new investment vehicles do not provide mechanisms to evaluate risk. Few are willing to invest without an understanding of the risk involved. Bank and investment company outlooks become speculative and their stock prices reflect this. Rating agencies downgrade the companies. This triggers additional capital requirements written into the CDS contracts. The cascade increases. FASB 157 becomes virtually impossible to implement since there effectively is no market. Liquidity stops because 1) banks can’t value what they own; and 2) they don’t loan assets they have because they might need them for capital.

People don’t understand because political parties are off blaming each other. News commentators spew gloom and doom scenarios. Runs on money markets ensue. Money markets sell short term securities to cover withdrawals and the market for commercial paper, which is funded through the money markets, dries up. Liquidity in commercial loans drops. Companies cannot access their lines of credit by commercial paper (bonds, etc,) Companies have to restrict operations and downsize.

People without jobs cannot pay mortgages. Second stage of cascade begins. Consumers look at institutions and decide that their money isn’t safe. They withdraw funds — banks become insolvent and are seized by the FDIC. Other banks stocks fall as result. Confidence erodes further.


 

So if we look at the root cause of all this, while Wall Street has it’s share of responsibility, you don’t discipline a dog for urinating on a fire hydrant — he’s just being a dog. Similarly, investment bankers do what they do — borrow and lend money and attempt to make markets. In this case, the road to hell is paved with good intentions and shares of Fannie Mae stock.