XLVI is XLII

During the entire 2007 season David Tyree had a total of four receptions - just one more than he made in Super Bowl XLII, one of which went for a touchdown and the one you just saw, the velcro-helmut grab, generally viewed as one of, if not the, greatest play in Super Bowl history. When the New England Patriots and New York Giants faced off February 3rd, 2008 in Glendale, Arizona, the Patriots were 12 1/2 point favorites and looking to cap an undefeated season, the first since the 1972 Miami Dolphins and only one since the NFL went to a 16-game format, a 19-0. The Giants on the other hand had backed into the playoffs, no one but the faithful gave them a snowballs chance and really, Eli Manning had no business getting out of the grasp and completing that pass to Tyree. But he did and four plays and 24 seconds later Manning completed a pass to Plaxico Burress for the game winning score in an inconceivable 17-14 victory.

The Dow Jones Industrial Average closed at 12,743 the Friday before that 2008 game. Unemployment in the US was 4.9%. Housing prices were continuing their perpetual upward march and the economy seemed to be humming along thanks to the wizards of Wall Street who had taken the risk out of living beyond our means in an orgiastic, credit fueled, consumer binge. Alan Greenspan was still god and had yet to discover the distressing flaw in his model that he perceived was the critical, defining structure that defines how the world worked, despite the considerable evidence. Presidential primaries were raging for both the Democrats and Republicans as everyone started to buy into hope and change, willing to believe anything as long as it ended the nightmare reign of the stunted shrub. We all know how all that turned out; another regularly occurring yet completely unpredictable financial crisis and the election of a Kenyan-Muslim-Socialist to continue and intensify all of Dubya's policies, codifying the darkest side of the regime. Inconceivable.



Fast forward four years and it's like deja-vu all over again. The Giants and Patriots vying for Super Bowl XLVI with the same quarterbacks, Eli Manning and Tom Brady, and the same coaches, Tom Coughlin and Bill Belichick (the Hoodie). After falling as low as 6,594, US stocks have recovered, the Dow surging 156 points on a Facebook news wave Friday to pass the level of four years ago to 12,862 (don't mind that it closed at 11722.98 January 14, 2000). We're assured that unemployment is on the way back down and the economy is gathering steam thanks to the rekindling of the consumer passion for taking on debt to buy stuff at the mall. Black Friday has become bigger than Thanksgiving, well, equally violent with more pepper-spraying. Meanwhile the Republican primary clown show will eventually have to choose Mitt Romney to run against Obama in order to reassure everyone they have a say in how the country is governed. It's winter and eventually got cold again, providing ammunition for the cognitive dissidents happy to make every day Groundhog Day. Plus the Patriots are favoured to beat the Giants in the Super Bowl again, so really, what could go wrong?

Oh, yeah. That whole history repeating itself thing. Panem et circenses while Rome burns and all that. From this year's opening kick-off, which fell on the 10th anniversary of 9/11, through the new Sunday mass shout-out to the troops protecting America's freedom abroad, the NFL provides the perfect propaganda platform. F-16 flyovers and fireworks fueling the jingoism reinforced by generals being paid by arms dealers to sell the next war which only needs to swap an n for a q for Iran to become Iraq. For many the commercials overshadow the game itself as ever increasing viewership figures fuel record prices paid for advertising slots to keep wanna be scientists (we call them economists) debating the value of  paying $4,000,000 for a  30 second chance at passive fatty, chemically charged Super Bowl snack zombie brains which are easily convinced all is well or will be better if they just upgrade their life by opening their wallets. As in Rome, we can forget about the spiraling costs of our ludi and munera while watching the spiraling pigskin while PIIGS wait to light the same fuse as Lehman Brothers four years ago. Seems the world, just like a good football team, is able to forget about yesterday's loss and move on. The difference is a good team learns from their mistakes, making adjustments on the fly and post game before lining up for the next play or game whereas we seem to never learn our lesson.

Yeah, yeah, the world changes, everything's really different this time. Tyree never caught another pass in the NFL while Burress went on to shoot himself in the leg in a nightclub nine months later. Injured the following preseason, Tyree spent the year on injured reserve before the Giants cut him in 2009. He signed with Baltimore but didn't catch on before signing a one-day contract with big blue in 2010 to retire as a Giant. As mall appearance fees dried up, looking for a way to support his six kids, Tyree did what any good born again Christian would do, he tried to raise his pundit profile by saying crazy stuff, "If they pass this gay marriage bill...what I know will happen if this does come forth is this will be the beginning of our country sliding toward, it's a strong word, but anarchy." With the Super Bowl rematch, Tyree will be sure to get on his soap box to tell someone how to live their life. Anything to do with religion is a sure dial-a-distraction success. Remember before Tebowing there was the Focus on the Family commercial featuring Timmy's mom which never explicitly mentioned abortion, only referring to almost losing him. This year stations in states with primaries are forced to air political ads, yes forced, or not, and yes graphic abortion ads bring Jesus and politics together on Super Sunday and Tuesday, where SuperPACs like Romney's Restore Our Future pay for the WMDs (weapons of mass distraction) without coordinating with him to decide elections thanks to Citizens United.

Plaxico. Plaxico, Plaxico. So much like America. So much natural talent, so much promise, so stupid. Weeks after Greenspan's ideology was thrown off kilter with the complete collapse of the housing debt bubble he had created and nine months after the Super Bowl, Plax shot himself in the leg with his own heater in a NYC club. The Giants have 16 active players still on the roster from the 2007 season, the Patriots just seven, Burress playing with the Jets after spending nearly two years in jail. Meanwhile, trillions in fiat money, dollars, euros and pounds, has been poured into the pit dug by neoliberalism's free market flaw and we can't even see the water yet, so we'll sail QE3 from Wall Street across the pond to the City and inflate Europe with ESM and EFSF and IMF to keep banks afloat instead of saving drowning people in underwater homes. And yes, impoverish our future to add to the wealth of the 0.01%, the NFL owners, and temporary 1%, the players, but at least the NFL spins off billions  while banks only siphon trillions up to the few.

To prognosticate, you've gotta look back to look forward in football as in finance, economics and so much more as the past is all we have to go on, which is why everyone is usually wrong. Before the season I picked the Patriots to win the Super Bowl by beating the Chargers, who didn't even make the playoffs, but will go against my preseason prediction, as what happened during the season matters. Resistance to change is why not one in a hundred economists predict bubbles bursting, ignoring the obvious is more profitable for those at the top making it safer to bet on football than the Wall Street casino where the house always wins. Regardless of its value, the barrage of information and the battle for its control will go on so let's take a quick look at the 2011 season to help us find XLVI's winner. I picked the Pack last year but the Colts in XLIV (though I did mention taking the Saints against the spread) and the Steelers over the Cardinals the previous season in my first Super Bowl post making me 2-1, but if the alternating win-loss pattern holds maybe what I've got to say will be wrong. Or not. Let's look back to move on.

We almost lost the whole season thanks to the battle between the 1% and the 0.01%, just having one was a bonus. With the collective bargaining agreement being signed so close to the start of the preseason, mini camps and most of the off season activities along with the first pre-season game were wiped out. It should have been hard on rookies but it wasn't the case on both sides of the ball. Cam Newton is so good he made it exciting watching the Carolina Panthers while Andy Dalton to AJ Green turned the Bungles into the playoff Bengals. The 49ers' Aldon Smith and Broncos' Von Miller were instrumental in getting their teams into the show as well. Along with Smith, the 49ers also had rookie head coach Jim Harbaugh to guide them to 13-3. However, this year will be remembered as the year of the quarterback, beyond Aaron Rogers, the pass happy league had two QBs beating Dan Marino's 5,084-yard season in 1984 record this year, Drew Brees (5,476 passing yards, 468 completions, 71.2% completion rate – all NFL records) and Tom Brady. Peyton went before brother Eli in most fantasy drafts this year, the unknown status of his neck non-fusion not enough to scare owners, but it is the younger Manning with the chance to go 2-1 up on his older brother in Super Bowl victories after almost 5,000 yards and 29 TDs while Peyton missed the year and may never play again. Brady is looking for SB number four.

Manning has the better WRs in the triumvirate of Victor Cruz, Hakeem Nicks and Mario Manningham, while Brady has his TE duo of Aaron Hernandez and Rob Gronkowski, the latter in a walking boot since hurting his ankle in the Ravens game two weeks ago. His health will be key having set the single season mark for TDs and reception yards for a tight end. Wes Walker put together a big year too for the Pats while Deion Branch has won a Super Bowl MVP on the other side but is on the wrong side of 32 for a speed guy. Imagine if Ochocinco had been able to learn the Hoodies' playbook. Victor Cruz exploded this year making huge plays on 82 catches and 1,536 yards, none bigger than the 99-yard catch and run against the Jets. Nicks went over 1,000 yards too while Manningham came back to life last week. It was the Giants TE Jake Ballard who made a great grab to beat the Patriots with 15 seconds remaining to give his team a 24-20 win earlier this year but he's slowed by a partial PCL tear so I'm looking for Giants' TE Bear Pascoe to make the difference (No, that doesn't have a cause and effect, it just is, like picking stocks versus playing the Patriots like the quants told you to do in your portfolio).

Both teams have a few options to run the ball too. While the Giants did finish last in the NFL in rushing this year, I like the Giants Bradshaw/Jacobs/Ware combination better than the Pats Law Firm led, Benjarvis Green Ellis, little Danny Woodhead and Stevan Ridley. Green Ellis has yet to fumble in his first 536 touches, catches and carries, an NFL record for the start of a career but Ridley did in the Broncos divisional game and was sat for the conference final. The black swan feeling for the unpredictable calls for a game-changing Law Firm fumble. A knicked up Bradshaw (his foot is always bothering him) is still more dangerous in the open field and is surprisingly powerful for his size while Jacobs can be a battering ram but needs to keep his shoulders turned upfield. Whether Vince Wilfork, the only Patriots defensive starter from 2008, can beat Bass and have the games he did taking out Tebow and then Ray Rice so far in the playoffs will determine the Giants running success. Unsurprisingly, they're all part of the passing attack, the diminutive size of Woodhead and Bradshaw make them particularly dangerous on screens as they melt into the pulling line and pop out with the ball.

The Giants are weak at tackle, Kareem McKenzie and David Diehl allowed 6.5 sacks each this season but it's the Patriots susceptibility to the long ball (hello you lucky bastard DB Sterling Moore for game saving-knocking the ball out of Lee Evans hands in the conference final to preserve the win over the Ravens) that should be decisive. Safety James Ihedigbo is no Rodney Harrison who couldn't even stop David Tyree. The Super Bowl does and will feature big plays on the big stage, any one of the three Giants WRs can, and so one will, go deep at some point. Kyle Arrington, the other regular in a defensive backfield that has had 16 players rotate through, might have had seven picks and 88 tackles this season, but there's a reason. Team's can and do throw at him along with triple-threat WR Julian Edelman who is often pressed into service to shore up the defensive backs, helping the team to their 31st defensive ranking. He couldn't contain the Ravens' Boldin, he'll be burned by Cruz.

The Giants had 48 sacks, third in the league, but have even stepped that up since it counted with 11 against the Jets and Cowboys to wrap up the NFC East and nine in three playoff victories thanks to their front four. All-Pro Jason Pierre-Paul not only blocked the kick to bury the Cowboys but led the team with 16 1/2 sacks in his second season, while Osi Umenyiora added nine in only nine games. Tuck and backup defensive end Dave Tollefson had five apiece, Chris Canty added four and fellow tackle Linval Joseph had two. There’s also linebacker Mathias Kiwanuka, who had 3 1/2 sacks playing as a lineman in passing situations. The back seven aren't their equal but improved as the year went on and the Giants' three-headed safety of Antrel Rolle, Deon Grant and Kenny Phillips may be able to contain Gronk and Hernandez.

While the Patriots did put together a 13-3 record led by Brady and the Giants only finished 9-7, their records are deceptive. The Pats first win against a team over .500 came two weeks ago when they beat the Ravens who probably should have won that AFC championship game. Not only did the Giants wins include one over the Patriots, but after starting 6-2, they then lost five of their next 6 putting themselves in a must win situation to close out the year. They responded and rolled. After beating the Jets and Cowboys, the Giants only gave up two points to the Falcons in the wildcard round, and that was a safety on offense of course. Sure the Packers were flat but they dominated the undefeated team that pretty much everyone and their mom had penciled to repeat as champs, 37-20. The 20-17 overtime victory at soggy Candlestick over the defensively dominant 49ers wasn't flashy but workman-like. The Pats took care of Tebow's Broncos and Brady "sucked pretty bad" and got a lucky field goal miss to beat the Ravens. Momentum favors the Giants.

Near random garble this prediction business but we still tune it in. Ignoring the fact the Giants defense ranked 27th themselves and that Brady can look a lot like that other guy I hate whose records he's now breaking, Joe Montana, as when he threw five first half TDs against the Broncos isn't that hard. It's easy when you just believe. Faith in markets, religion and football is all the American Dream has left, the rest is in hock ($15 trillion+ and counting). Madonna, the Like a Prayer, Material Girl, energizer bunny will be performing at halftime with the Cirque de Soleil while the real life circus goes on and on. The Giants will hit a couple of big plays while the Pats make enough mistakes to give us another upset Giant victory. In Vegas and on Wall Street the house always wins, socialized losses and privatized losses for banksters while Nevada's sports books have come out on top 15 of the last 16 Super Bowls. This year bookmakers have kept the Patriots as field goal favorites despite most of the betting money, about 65%, going on the Giants. A Giant win will likely wipe out more than a few casinos, it may even bankrupt Nevada if the housing bubble hadn't already done it. The one Vegas got wrong in the past 16 years? Yep, the Giant victory four years ago. Could the real casinos be trying to imitate the version the financial markets played of them just four years back? Or, is it vice-versa? Whatever, Giants not only beat the spread, they win straight up, 31-28.

Rent Seeking Parasites

Editor's note: There is no editor. Much like Qaddafi's translator at the UN, the editor went mad halfway through and began screaming "I can't take it anymore!". Therefore, venturing forward into this stream of consciousness is a decision not to be taken lightly, continue at your own peril.
If your still determined to continue, just click here, move the pop-up aside, and read.

Imagine walking into a casino where you're always a winner. Every game is rigged in your favour, every dealer is not only your friend, but accomplice, and the pit bosses are all in your pocket. At first, you can't imagine your luck, so you pump a few quarters into the slots. With each pull your stake grows. Over at the blackjack table you make a couple of small bets and your cards keep adding to 21. Emboldened by your early success you walk over to the craps tables where you start to push your luck as the dice are hot. A crowd grows, the collective excitement of the screams, shouts and cheers pushes you on as if in a dream. Other players are drawn in, with piles of chips going onto the 'pass' line and the 'no pass' bar on each roll as everyone is getting into the action, betting with and against you - how do they both keep paying off? You must have been born lucky as you've wandered into no ordinary casino. Somehow you've won the lottery and wound up a big banker in today's America, a world onto it's own where thanks to the system you can't lose. All well and good for those fortunate few, but really, can it go on forever?

We're a year removed from what was nearly the biggest global financial meltdown ever, yet looking around it's hard to see any tangible proof that we're in a better position than we were then; I'd argue that things have, in fact, gotten worse. The heart of the problem lies in the Panglossian vision of the financial world that still reigns supreme despite the abyss that we stared into not so long ago. Instead of viewing the markets as a casino with risks and pitfalls that need to be controlled, we live in the best of all possible worlds where the efficient market theory asserts that financial markets always get asset prices right given the available information. Therefore the best thing corporate chieftains can do, not just for themselves but for the sake of the economy, is to maximize their stock prices. Problem is, this efficient market is far too heavily influenced by a few rent seekers (some would call them parasites, sucking the blood out of the organism while giving nothing in return, others, simply banksters). A feedback loop wherein increased wealth leads to increased influence leading to increased wealth... Eventually those in power become completely beholden to these few. Together, they have managed to dupe the entire world into believing in the market's omniscience. Witness the knee jerk reaction by large swaths of the population, many of whom are dirt poor, without health insurance, to any suggestion of trying to improve the lot of millions, as it would involve obstructing the 'free' market. In other words, finance economists believed that we should put the capital development of the nation in the hands of what Keynes had called a “casino”. What keeps the rest of us content is the illusion that we, too, will eventually be able to game the system, so long as the government doesn't interfere.

Yet interfering is exactly what the government has done over the past year, with little or no questioning of why we're supporting a broken system. To seriously question a system that promotes short term profits and corruption remains blasphemous. Fact is, the capitalism we have is evil and it's threatening to devour itself along with the world. When a financial crisis hits most nations, investors run for the exits, the IMF swoops in, sweeps away the old banking regime and imposes usurious trading rules and financial regulation on the country. We've now seen what happens when a similar crisis hits the USA. A couple of scapegoats are allowed to fail (Lehman Brothers, Bear Stearns, Merrill Lynch...) while the friends of the ruling elite are saved by pumping tax payer money into them; trillions of dollars of wealth transferred from tax payers to wealthy bankers. Of course it was these bankers who made the ridiculous gambles seeking short term profits which allowed them to pay themselves huge salaries and bonuses. When the giant Ponzi scheme collapsed, no one was found responsible, worse yet, to question and regulate is seen as somehow "communist", and those guilty parties are allowed to continue on their merry way.

So, how did we get here? Historically, banking has been a risky industry having seen its share of spectacular crashes. Until the Great Depression, major crises struck about every 15 to 20 years – in 1792, 1797, 1819, 1837, 1857, 1873, 1893, 1907 and 1929-33. Then the crises stopped. The last two led directly to the creation of the Federal Reserve and the New Deal. A magical machine to manufacture money out of thin air along with financial regulation such as federal deposit insurance, the passage of the Glass-Steagall Act and the separation of commercial and investment banking created a stable environment without hindering growth which was also broad based as we saw either stable or falling income inequality. Unfortunately, the seeds of moral hazard were also planted. As depositors and investors no longer had to worry about the soundness of the banks, they would be attracted to riskier institutions and higher rates of return without the fear of downside risk, causing money to flow to weak banks rather than strong. Said one opponent in 1933, “A reputation for high character [in banking] would be cheapened and recklessness would be encouraged.” Fortunately, the authors of Glass-Steagall (and the follow-on Banking Act of 1935) prepared for this threat, authorizing not only public deposit insurance but also meaningful bank regulation, designed to ensure the safety and soundness of insured banks.

All was well for almost 50 years, creating wealth but also breeding arrogance. We began to forget the lessons of the past as memories of the Depression faded and economists fell back in love with the idealized vision of an economy in which rational individuals interact in perfect markets. We moved away from Keynes' vision of financial markets as a casino and replaced it with Eugene Fama's efficient market theory in which financial markets price assets at precisely their intrinsic worth given all publicly available information. John Meynard Keynes didn't replace capitalism as many critics feared at the time, he simply fixed it. Unfortunately, the last half a century saw a revival of the neoclassical Adam Smith style belief in 'trust the market'. Your Milton Friedmans and Schumpeters of the world convinced us to start loosening the grip on the banksters. The hubristic faith in the market omniscience was embodied by Alan Greenspan, a man who believed the market could regulate itself on everything from fraud to derivative trading. At the same time the influence the banksters could exert on public policy was growing. Finance's success in the 80's coincided with the rise of the era of Washington lobbyists which lubricated the revolving door between Wall Street and government. Just looking at the myriad of connections between Goldman Sachs and political power is mind boggling. Henry Paulson, Dubya's last Treasury secretary and present secretary is a former Goldman CEO, Robert Rubin, Clinton's last Treasury secretary spent 26 years at Goldman before becoming chairman at Citigroup; John Thain, he of the $87,000 area rug for his office, spent time at Goldman before driving Merrill Lynch into the arms of Bank of America, Robert Steel, Mark Patterson, Ed Liddy, the heads of the Canadian and Italian central banks, the World Bank, the New York stock exchange, the last two heads of the Federal Reserve Bank of New York ... you get the picture. Somehow Wall Street was able to launch a successful takeover bid of the Beltway and could now dictate its terms. Regulation needed to be eliminated in order to allow finance to continue to grow; to achieve this, in the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years.

"Human nature, in no form of it, could ever bear prosperity” - John Adams, as quoted by David Brooks in the NY Times a week ago and seven years ago - compare and contrast.

Culturally, America and her wannabes, the rest of the world, changed too. (Begin using old man voice) Back in the day, it was understood that you had to work hard to be successful. Today, that ethos has been lost as everyone and their uncle search for the next get rich scheme. Materialism has gone beyond acceptance and become the standard to which we strive. Both the public and private spheres have made their contributions as governments sponsor lotteries, gambling which disproportionately hurts the poor while we are subjected to a 24/7 media which promotes an excessive lifestyle. The effects are plain to see; between 1950 and 1980 personal consumption was remarkably stable in the US, amounting to about 62 percent of GDP. In the next three decades, it shot upward, reaching 70 percent of GDP in 2008. During this period, debt exploded. In 1960, Americans’ personal debt amounted to about 55 percent of national income; by 2007, this figure had surged to 133 percent. By 2019 the federal government's debt will be 83% of GDP with yearly interest payments of $803 billion. By the end of the Bush presidency, one that saw over $1.3 trillion in tax cuts which mainly benefited the top 1% of earners, the poverty rate had risen to 13.2% while median household income had fallen to $50,303 from $51,295 ten years earlier, adjusted for inflation. Consumerism became more than just keeping up with the Jones', it became patriotic even while debt levels were driving risk to unsustainable levels. Yet, somehow through all this, the teabaggers and their ilk have saved their anger for a Socialist/Nazi/Communist/Alien plot to destroy the nation by trying to give health care to the masses. Immodesty has become as ubiquitous as advertising as self indulgence, self-love, self-advertisement, are not only accepted but celebrated. It would seem that Ayn Rand has truly won the day.

"When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done” - John Maynard Keynes, The General Theory of Employment, Interest and Money

Worse yet, the warning signs were all there. Since the age of deregulation we've seen Savings & Loan meltdown, the LTCM debacle, the Asian Crisis, yet we keep marching to the same drum beat. Accounting scandals, market manipulation and an internet bubble showed us how easy it is to be lured to the dark side, yet we keep dancing to the same song. Maybe it's because we've been hypnotized by the rhythm for so long we no longer have the power to stop the music. Finance and banking exist for one simple purpose, to efficiently allocate capital. So, what happens when all the capital, both human and monetary, is all tied up in finance? Profits of the financial industry as a percentage of total global profits were a mere 5% when Reagan sat in office in the early eighties; by the time of the crisis, that number had reached 30%. Wiz kids coming out of school no longer dream of working for NASA or becoming a doctor, lawyer or engineer; the holy grail is now finance, to come up with a Gaussian copula function to evaluate or even eliminate risk. And why not, they're just behaving in a logical, capitalistic way, as pay in the financial sector has risen dramatically. From 1948 to 1982, average compensation ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007. Works intended as cautionary tales of excess such as The Bonfire of the Vanities, Barbarians at the Gate and Wall Street, have served only to increase Wall Street's mystique. 10 years ago if you'd have been walking down the main drag of my home in Poznan, Poland, Swiety Marcin, you would've been able to stop at a variety of shops. Today, you can drop by a branch of some bank and walk by empty shops squeezed out by the higher rents brought on by their well-heeled neighbours. Speak to the majority of the brightest minds entering higher education and you'll learn that most dream of a career on Wall Street. And why wouldn't they? Even after the crash, the 30,000 employees of Goldman Sachs earn an average salary of $700,000. Eight major American and European banks will pay the 141,000 employees in their investment banking units $77 billion in 2011, about $543,000 per worker.

While the financial crisis may have been good for the planet, it wiped out a lot of wealth; US households alone saw their net worth decline by $13 trillion. There was a time when bankers had to pay a price for their mistakes; if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. Even the idea of 'double liability' in which stockholders were responsible for twice the original value of their shares in a bank existed until the age of the Fed in the US. Let's see a few examples of what happens today:

AIG. Patient Zero of the global economic meltdown, Joseph Cassano, head of AIGFP (400 employee London-based AIG Financial Product division). After bundling the crappiest mortgages they could find and slapping AAA ratings on them, banks needed someone to insure them. Enter Joseph and the Amazing Technicolor Credit Default Swaps, CDS. AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Of course we know how this story ends, housing prices start falling, AIG's AAA credit rating begins to slide, triggering collateral calls and by February 2008, AIG is posting an $11.5 billion loss. What happens to Joseph? Burned at the stake? No, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others. When Congress balked, AIG canceled the $90 million in payments. Then, in January 2009 AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece.

Two of the other main culprits in the financial meltdown, Fannie May and Freddie Mac, have actually gotten bigger, and therefore more dangerous.

Merrill Lynch CEO Stanley O'Neal, a man who acknowledged his mistake in overexposing his firm to subprime and thus causing its downfall walked away from the company with a severance package worth $162 million. Executives of the company had their $3.6 billion in bonus payments moved forward to December last year before the firm was taken over by Bank of America for fear of having them cancelled. Well, at least someone's trying to do something about it.

Five of the biggest US banks - Goldman, JPMorgan, Wells Fargo, Citigroup and Bank of America - posted second-quarter profits totaling $13 billion. That's more than double what they made in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the second quarter of 2007, when the economy was strong. The main argument for the bank bailouts was that they were "too big to fail", yet the net result is banks that are now even bigger. The bailout enabled mergers and acquisitions have left those banks still standing in an even more dominating position. And what happens when 4 banks (Bank of America, Wells Fargo, JP Morgan Chase and Citi) issue one of every two mortgages and about two of every three credit cards? The top four banks raised fees related to deposits by an average of 8 percent in the last quarter.

Speaking of Bank of America, take a look at this sweet deal they got.

In the UK, banks such as RBS, the Royal Bank of Scotland, behaved even more scandalously. Despite posting the largest loss in UK banking history a year ago, the former chief accused of bringing the bank to its knees, Sir Fred Goodwin, not only received a £2.7 million tax-free advance on his vast pension, he'll get £693,000-a-year as it's total worth is £16 million. I do suppose home security will be expensive for him. Well, they did say sorry, which I guess is why they figure it's OK to pay new boss Stephen Hester £9.6 million a year.

Barclay's got some of Lehman's US business, including its glitzy Manhattan headquarters, for what many regard as a fire-sale price, $1.75 billion. Well, I guess you deserve a prize for remaining the only major British-owned High Street bank to be fully independent from government capital.

Meanwhile, if you weren't best friends with the US Secretary of the Treasury, your bank may have gone out of business. Another 94 have closed their doors this year alone, while the number of 'problem' banks had risen to 416 by June 30th, up from 305 three months earlier. And guess what? The FDIC, those folks who are supposed to protect the consumer again the risk of bank default actually underestimated the risk of bank defaults. Yep, looks like they'll need a bailout soon too.

And how about Goldman Sachs? The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout. And what did Goldman give back to the people of the United States in 2008? Fourteen million dollars, an effective tax rate of one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion, yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations. Previously, a dozen or so big banks formed the top tier. Now Goldman Sachs and JPMorgan Chase are clearly the strongest, with Morgan Stanley struggling to compete. Bank of America and Citigroup are the weakest big banks, heavily reliant on government guarantees to survive. The extensive government support that began after Lehman collapsed will lead investors to assume that governments will always prevent major banks from collapsing. The Greenspan put has been replaced by the Bernanke put (a put is effectively a promise to buy an asset at a fixed price if you are unable to sell it to someone else at a higher price – this is a way to lock-in profits or limit losses on investments) so investors will continue to lend money to the financial industry on easy terms. In turn, financial institutions will use that cheap money to make risky loans and trades. The banks will keep the profits when their bets pay off, while taxpayers will swallow the losses when the bets go bad and threaten the system. Economists call the phenomenon moral hazard. Bankers have a different term: I.B.G. The phrase implies that by the time a deal goes sour, “I’ll be gone,” after I get my huge bonus.

Even when someone in a position of power raises the issue of whether parts of our financial system have become dysfunctional, s/he faces heavy criticism from all quarters. Witness the reaction faced by the UK’s chief financial regulator, Adair Turner, when he suggested just that, and called for greater capital requirements at banks and pondered how it would be possible for regulators to preserve the valuable parts of our financial system while regulating to limit the harmful parts. For some reason it is a given that the rich deserve an advantage of say, 30 milliseconds. Or that it's a good thing that financial gurus are giving up bundling mortgages in favour of old and dying people's life insurance policies. Or that instead of betting on you to default on those mortgages, now there just making bets on nations defaulting on their sovereign debts, in index form, and not just Argentina. Wait, even better, remember all the slicing and dicing, with the tranches and other voodoo they did to turn those crappy mortgages into AAA securities? Well, apparently, with a little more alchemy and sharper knives, they can be re-rebundled in order to further lower bank capital requirements. Hooray, it's the re-remic!

But what's the problem you may ask. Markets are up, nations are emerging from the recession, the financial industry is back to inventing new ways to make profits, all will be well in the world once again, maybe we do live in the best of all possible worlds. Wrong. Someone has to pay when the bubbles burst, and who has been paying the bill upfront for the taxpayer to this point? - China. And just as investment firms such as Goldman Sachs had insurers like AIG protecting their exposed behinds while they placed their bets on various financial derivatives, China is busy trying to hedge their bets on the US economy. After AIG wrote hundreds of billions of dollars of credit insurance and had no money to make good on its promises when the bonds defaulted, the US government was there, but who will be there when the US government can't find someone to buy their debt to pay the bills? So China is covering their bets by putting their money on themselves, with a little help from glittering gold. Realizing the world will not continue to support a fiat currency that can simply multiply itself at will to solve any problem and thereby reduce it's value (simple economics), China seems to be putting all the pieces into place to make themselves the world's store of wealth. Aaah, yes, competition. With nowhere else but US Treasuries to invest until now, the world has been forced to support the bubbles that America has chosen to create. September 28th saw an important volley in the coming financial war as 6 billion yuan worth of government bonds went on sale in Hong Kong. Taken together with the push for increased importance of the International Monetary Fund's Special Drawing Rights and lust for gold, it's clear they're looking for other avenues of investment. Any good investor knows that you have to limit your downside risk, and the financial industry's debt along with the increase it has caused in government debt pose significant systematic risk. While everyone moaned and groaned about the $700 billion TARP bailout, the real cost to the taxpayer is clouded by secretive operations with names no one has heard of such as Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or how about something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III. No one even knows where the bailout money has gone or how it's being paid, but the bottom line is a potential price tag of $23 trillion, yes trillion with a 't' for the US tax payer to pay for the mistakes of the financial industry and China knows that not even they can finance that. History is replete with examples of financial experts telling us that this time it's different, but if there is one common them to financial crises it is that excessive debt accumulation, whether it be by governnment, banks, corporations or consumers, often poses greater systemic risks than it seems [to do] during a boom.

No ideology can stand alone in the world. That would be a monopoly. Capitalism has stood unchallenged for 20 years now as an unchallenged monopoly (What do we really call China's system these days?). Monopolies are cancerous to the capitalist system. The defeat of its only legitimate rival, communism, has brought about a situation that has slowly killed what capitalist, neo-cons and Reaganites dreamed of creating. Is that irony? Or some kind of meta-level parallel. I don't know, but it's become clear that the monster created by this untethered beast, the financial system, is ever closer to destroying the world that it's trying to control and there's no one trying to stop it. Back in 1907, they say that JP Morgan single handedly saved Wall Street guaranteeing tens of millions of dollars to keep the wheels of finance turning. Today, the people, through their governmental agent, the Fed are guaranteeing trillions due to the latest bubble, and I'm afraid the bubbles have to get bigger each time to keep the party going. Oh no, the G20 meeting might force new regulations onto the industry, not! More likely they would be encouraging instability in order to smooth the way for the FSB (the Financial Stability Board, not the new KGB). Oh no, President Obama is giving a speech to bankers about their responsibility to act prudently, well, what self-respecting banker would bother going to be lectured to? If you wonder why they don't need to listen, just ask yourself whose money put Obama in the White House. Then perhaps you may realize as Voltaire's Candide did, that Dr. Pangloss really is just wearing rose coloured glasses.

Footballs and Bubbles

Dot-com bubble. Check. Housing bubble. Check. Commodity bubble. Check. What could be next, hmmm, let's look into the ol' crystal ball here... getting something, yeah, definitely getting clearer, but, no, it can't be, it just looks like a bunch of men chasing some kind of ball, not profit, this can't be the next financial bubble surely. Sadly, it could be sports fans, as the value of professional sports teams has grown exponentially in the last decade it has become a prime candidate for the next bubble to burst.

With the countdown to the NFL's Super Bowl (yeah that football, the American kind) down to just two weeks, there's a chance the opposing teams combined value will be under $2 billion - like the Arizona Cardinals a bit of a long shot in a league where 19 of the 30 teams are valued over a billion bucks. I'm picking the Eagles to end the Cardinals improbable run, but it'll be great watching the NFC Conference final in the desert on Sunday. If that happens along with the Steelers taking the Ravens in the AFC, the combined worth of the finalist will be almost exactly 2 bil, $1.92 billion.

There are 24 professional franchises worldwide valued in the ten digits; in 2004 there weren't any. Top spot worldwide goes to Manchester United. It's hard to put an exact figure on their worth, in many a Premiership fans' hearts as well as hard currency, but it's about $1.8 billion. Bubble buying in their league is exemplified by Manchester City's Sheikh Mansour bin Zayed. Spending boatloads on Robinho and now looking to land Kaka, he may wind up with a team relegated from the Premiership (note to US readers, the lowest and highest teams fall and jump to the next league each year). The sheik's family's only worth a trillion so I guess he can afford to do what he wants. Almost makes Chelsea's Roman Abramovich look poor. The professional sports teams perhaps hit the hardest by the crisis also plays in the Premiership, West Ham. Icelandic owner Bjorgolfur Gudmundsson lost hundreds of millions of pounds last fall due to the collapse of the banking industry, forcing the team to sell players to keep afloat. Malcolm Glazer's bold maneuverings to take control of Man U were so successful that he now fully owns the team. When he reached the 98% threshold of outstanding shares (causing a compulsory buyout of remaining shares in June of 2005 the final valuation made them worth 800 million pounds, or $1.5 billion at the time. Glazer also owns the Tampa Bay Buccaneers in the NFL so you know, he only owns a couple billion dollars worth of professional sports teams.

His Bucs won a Super Bowl a few years back, the Cowboys have won five, helping Dallas, along with a new stadium for next year (and the all important new stadium deal!) to be worth $1.6 billion, the second highest valued sports franchise. The Steelers would be one win away from six rings with a win Sunday. I'm taking Pittsburgh to beat the Baltimore Ravens as the Steelers D shows who was number one this year and the Ravens will be tired and holes will appear in the league's number two defence. Think the Steelers may even run it up a bit, dare I say 30-10 provided steady rookie sensation Joe Flacco throws up a couple picks. Philadelphia takes care of the Cardinals 39-35 in a wild finish. Kurt Warner will put up 5 TDs in a losing cause: 2 to Anquan Boldin whose back this week to join fellow 1000 yard receivers Steve Breaston, who'll snag a touch, and Larry Fitzgerald, who looked like the best in the NFL last week, getting a couple.

Arizona plays their home games at the silly-ly named Sportsman's Park at Cardinal Stadium, sure to be renamed soon as there is huge money to be made. An unlikely number 10 on the world's richest list are the most recent NFL expansion team, the Texas Texans (another awful name) helped by the fact that their home field's name, Reliant Stadium, brought in $300 million. FedEx stadium, er, the Washington Redskins come in 3rd on the list at $1.5 billion, Gillette adds to the Patriots 3 recent Super Bowls, boosting New England's value to fourth at $1.32 billion. Next are the only baseball team in the top 10, unsurprisingly the New York Yankees - being worth $1.3 billion somehow allows them to throw over $400 million at 3 free agents this winter, um hello, crisis, what crisis? Real Madrid's $500 million in revenue, string of signings (remember Figo, Ronaldo, Beckham, Owen, Van Nistelrooy) and Santiago Bernabeu, the only stadium in this list I've seen a game at, despite shrinking from 120,000 to 80,000 max attendance in the past few year, make them 7th at $1.29. Emirates push Arsenal to 8th and $1.2 billion.

Rounding out the top ten are the two New York NFL teams, the Jets and last year's Super Bowl victors the Giants. If you've made it this far and don't like sports you may wonder how these kind of valuations are possible. Speculators thrive in environments where logic and value stop co-existing. Perhaps the first recorded speculative bubble was Tulip mania. Back in the 16th century the market for tulip bulbs exploded, you can't make this stuff up. A future's market in the bulbs was opened in 1636 and the price of bulbs skyrocketed amidst a bubonic plague outbreak. And you thought buying people mortgage's on future's markets wasn't a good idea. Talk about toxic assets, the flower's vivid colours and therefore value jumped partially because of a virus that many carried. In tulips, the virus caused flame like colouration to occur on the petals, while the financial system has suffered from the contagion of unbridled banker and investor greed causing it to crash, a la Phoenix.

So, could professional sports be another bubble? We've got oil wealth, real estate and the Russian mafia all bidding up prices for players and signing TV contracts to extreme prices, all in the irrational chase for paper profit. The last sports bubble was in trading cards of all things, where a Honus Wagner card is worth $2.8 million. Coincidentally Wayne Gretzky once owned this card along with Bruce McNall. His sale (I mean of the actual player Wayne Gretzky) to McNall's LA Kings from my hometown's Edmonton Oilers marked a new phase of growth in player salaries, league expansion and franchise values in 1988. The greatest player in the history of a sport was deemed worthy of sale for profit. The numbers don't shock today as they did then, but the deal involved a couple other players (with more talent coming the Oilers way) the Kings number one draft pick plus $15 million, putting his price tag near $20 million. Nowadays, a Kaka turns down 100 million pounds, the Yankees drop $400 million on 3 players and somehow value ratios are way out of whack. Value, yeah that's the kicker, many blame today's crisis on the loss of perspective of what constitutes value, the price is going up, so it must have value! I love sports but sadly see that the beginning of the end came the day they sold Gretzky.