Tag Archives: US government

Subprime meltdown

The mainstream media coverage of the US subprime mortgage meltdown has mostly been about all the folk who have lost their homes, and various plans the government has come up with to try and ease the problem. Thinking about it more carefully, though, doesn’t it seem a little odd for the US government to interfere in the sacred free market merely in order to save a bunch of poor people from ruin?

Well, the SF Chronicle has an interesting article that explains this curious situation. It’s not about saving people from losing their houses, it’s about saving the banks.

During the housing bubble which was fueled by the subprime lending, banks sold mortgage-backed securities. For those who don’t know, mortgage-backed securities are basically in-place mortgage agreements, packaged for resell between financial organizations, or between financial organizations and investors.

The key is to view a mortgage in the abstract, as a promise by person A to pay an amount X for N years. That promise has a value, and can be sold.

For example, we arranged our mortgage through a small financial firm in the Austin area. Once all the paperwork was done, they packaged us up as an asset and sold us to GMAC. GMAC took on the business of extracting money from us over the course of years, and paid the small financial firm a lesser amount in compensation for the value of us as a customer.

This is generally a good thing. Because GMAC does administration for millions of mortgages, they can provide convenient billing and payment services, and reduce per-customer overheads. For the small firm, the benefit was immediate cashflow and no ongoing overheads.

A similar process can be used to package a mortgage and sell it to investors as a bond. The bank gets to remove the liability from their balance sheet; they can then use the cash to provide mortgage funds to more homebuyers. Hence, allowing the transfer of mortgages as mortgage-backed bonds should allow more people to buy their own houses.

For example, suppose John Smith owes the bank $1000 a month for the next 20 years. That’s a total of $1,040,000. The bank could sell that mortgage to an investor as a bond for (say) $750,000. The bank would get the $750,000 immediately, reducing their liabilities. They could use the money to finance some new homebuyer’s mortgage. Meanwhile, the investor would get $1,040,000 over the course of the next 20 years, making a nice profit. And the whole thing could be treated like a regular bond or stock market investment–the bank could continue to process the collection of the actual mortgage payments, just like it would process dividends on a mutual fund investment.

The problem is that since the banks expected to sell off the mortgages to eager investors hoping to cash in on the property boom, they didn’t really care too much about checking that the mortgages were sound; and the investors didn’t really have any way to check on the actual person paying the mortgage.

However, there’s language written into these mortgage transfer securities stating that if there’s fraud, the bank which sold the mortgage is legally obligated to offer to buy it back at the original price–which is now often ten times the actual value likely to be extractable from the homeowner. Fraud like, say, people lying on their mortgage applications, or inflated property appraisals, or e-mails on bank computers suggesting that they knew the market was a bubble that couldn’t last. Then there’s the issue of companies like S&P, who helped the banks to structure the subprime mortgage securities to look as good as possible on paper.

So if too many mortgages fail, and investors start demanding that their junk bonds be repurchased by the selling banks, those banks will go under. At that point, the FDIC and the government will have to step in, and we’ll basically have a taxpayer-funded bailout of a bunch of big corporate banks who defrauded investors. It’ll be the Savings and Loan crisis all over again.

How about pressuring the investors not to call in the cops? Well, unfortunately a lot of the investors are in foreign countries. Some of them are foreign countries. With the current state of US diplomacy, a conversation that starts with “Hey, we were wondering if you could eat a few billion dollars in losses to fraud so that we don’t have to bail out our rich corporate buddies in full public view” might not go too well.

But never mind, it may not come to that. A crack team of financial experts are trying to come up with a way to salvage the situation. We know they’re experts because, as the Chronicle points out, they’re exactly the people who got us into the mess in the first place…

Iraq^Hn

Text from a memo found in terror leader Abu Musab al-Zarqawi’s hide-out:

As an overall picture, time has been an element in affecting negatively the forces of the occupying countries, due to the losses they sustain economically in human lives, which are increasing with time. However, here in Iraq, time is now beginning to be of service to the American forces and harmful to the resistance [...]

In general and despite the current bleak situation, we think that the best suggestions in order to get out of this crisis is to entangle the American forces into another war against another country or with another of our enemy force, that is to try and inflame the situation between American and Iran or between America and the Shi’a in general.

[...] We have noticed that the best of these wars to be ignited is the one between the Americans and Iran, because it will have many benefits in favor of the Sunni and the resistance [...]

Sometimes you have to wonder whose side the US government is on.

Torture

Now that we’ve all accepted torture as a legitimate tool of the US government, the question is simply when it’s appropriate. The answer seems to be: pretty much any time the government doesn’t like what you’re doing.

Navy Veteran Donald Vance became aware of illegal arms sales in Iraq—land mines, rocket launchers, that sort of thing. He reported it to the FBI. In return, he was imprisoned as a “combatant” for 97 days and tortured.

There were times, huddled on the floor in solitary confinement with that head-banging music blaring dawn to dusk and interrogators yelling the same questions over and over, that Vance began to wish he had just kept his mouth shut.

The America-hating left-wing rumor sheet publishing this news?

Forbes.

State department pwned, thanks to Microsoft

From AP via Slashdot and Yahoo:

A break-in targeting State Department computers worldwide last summer occurred after a department employee in Asia opened a mysterious e-mail that quietly allowed hackers inside the U.S. government’s network.

In the first public account revealing details about the intrusion and the government’s hurried behind-the-scenes response, a senior State Department official described an elaborate ploy by sophisticated international hackers. They used a secret break-in technique that exploited a design flaw in Microsoft software.

Consumers using the same software remained vulnerable until months afterward.

Donald R. Reid, the senior security coordinator for the Bureau of Diplomatic Security, also confirmed that a limited amount of U.S. government data was stolen by the hackers until tripwires severed all the State Department’s Internet connections throughout eastern Asia. The shut-off left U.S. government offices without Internet access in the tense weeks preceding missile tests by North Korea.

Awesome. Meanwhile, Microsoft lobbyists successfully killed a bill in Florida that would have opened the path for official use of OpenDocument standards instead of proprietary Microsoft Word documents.

Free market? Pah!

I’ve written quite a few times about horrible airline experiences, primarily at the hands of American Airlines. Well, there’s one airline I’ve never had a bad experience with, and that’s Virgin Atlantic.

Which is probably why the US government doesn’t want to allow Virgin to start operating in the US. Lip service to the free market is all very well, but if a foreign airline is allowed to show US passengers that flying doesn’t have to be a miserable experience, where will it all end? I mean, take a look at VA’s cattle class cabins. They’re better than Delta’s first class.

So, if you’re the kind of pinko subversive who thinks sucky, bankrupt American airlines should see some competition, there’s an online petition you can indulge in. Or you could even write some paper letters.

Postscript: Hamburger Helper

Food turned out to be less of a problem than in Berlin, oddly enough. There seemed to be lots of vegetarian restaurants, and we found a vegetarische imbiss at Schantzenstrasse and Susannenstrasse.

I also got the impression that people were more friendly than in Berlin. Then again, perhaps it was my imagination, a side effect of my becoming more used to Germany.

Josef had an original LP from the first release of Autobahn. The band look like big geeks in the photo, and the sleeve credits Conny Plank. (His name was removed from later editions.)

CD shopping was made more annoying by the fact that nowhere seems to take credit cards, not even big stores. If you don’t have an EC card with a PIN, forget it.

Stereotypes sometimes have an element of truth to them. While we were in Hamburg, Josef and Ute helped rothko to polish the text of her German scrapbooking site. The original text talks about the enthusiasm of TLC scrapbookers for the business. For our hosts, this proved to be the most difficult piece to translate, and it took a long time for them to come up with an acceptable German phrase for “enthusiastic”. Apparently the literal translation of the word would be viewed with great suspicion in a business context, particularly when said by an American.

This reminded me of my two favorite jokes about Germans:

  1. Q: How many Germans does it take to change a light bulb?
    A: One, and he does it with ruthless efficiency.

  2. Q: Why did the German cross the road?
    A: Because the traffic lights indicated that it was appropriate to do so.

We got to the airport for our return at around 06:30. The queue was very, very long. The airline official checked my passport and visa (permanent resident card). Then he asked for my driver’s license. After that, he wanted proof of employment. Fortunately my medical insurance card has IBM’s logo on it.

This is all the result of the US government decreeing that airlines should pay the cost of deporting people. Ironically, if you don’t have a visa at all then you’re OK as far as the airlines are concerned, because it means they’re not on the hook; it’s if you do have a visa that they have to triple-check everything, just in case the visa is fraudulent or you can’t continue to meet the terms of your residence.

Next, we had to queue for the metal detector. My passport was checked again. Then we walked through to the hallway beyond, and walked to the departure gate…where there was another security checkpoint, with another queue. My passport was checked a third time, and everything went through another round of metal detection, this time using a wand.

Just when I thought things couldn’t get more ridiculous, I realized that they were hand-searching the carry-on luggage of every single passenger. I cooperated with removing every single item from my bag, so they could be checked one by one.

The guard noticed the TRIO DVD and grinned. “Trashy,” he commented. It turned out that he had been a fan back in their early days, before they became famous, when they were playing obscure Hamburg clubs. Somehow this puts a more human feeling to the proceedings, and makes it all seem better.

When we got to Newark, we had to collect our luggage. We re-checked it, and it was scanned again. Then, we had to go through security, for what was my third round of metal detection and fourth round of passport checking.

At immigration, I was handed back my documents with a smile and “Welcome home”. Maybe I was fragile from the 8 hours on the plane and the repeated security screenings, but I felt genuinely touched. And not in a full-body-cavity-search kind of way.

Social Security Numbers: A Modest Proposal

Yet again, a business has been cavalier with tens of thousands of people’s personal data . If your W-2 was processed by PayMaxx in the last few years, any number of people might have read it. There could be thousands of identity thefts as a result.

Yet it’s not really PayMaxx who will be at fault if identity theft occurs. The real problem is that too many businesses use Social Security Numbers (SSNs) for authentication.

SSNs aren’t unique, they aren’t secret, and they were never intended to be used as universal identifiers, let alone authentication tokens. However, the relative obscurity of SSNs has led many businesses to misuse them to verify identity, even though they are completely unsuitable for the purpose.

The simple and obvious solution would be for the US government to legislate prohibiting use of SSNs for any purpose other than identifying taxpayers and social security recipients to the federal government. The legislation would be set to take effect some time at least 12 months in the future, to give companies plenty of time to issue new identity numbers to their customers.

It seems obvious to me that that will never happen, however. Too many corporations with a vested interest in cross-referencing their databases with everyone else’s, and no motivation to spend money on real security.

But I contend that we don’t need to wait for government to act. As I’ve already mentioned, SSNs aren’t actually secret. It’s apparently pretty easy for any random company to get a database of SSNs, and it seems clear that hackers can obtain such databases too. So let’s try a thought experiment…

Suppose a secretive band of hackers obtains a large database of SSNs, ideally the SSNs of the majority of people in the USA. They take out prominent ads in the major national newspapers, announcing that as of January 2007, the database of SSNs will be made available to anyone who wants it, via the Internet.

Companies misusing SSNs would have a simple choice: either stop doing so, or face massive fraud against them in 2007. Shareholders wouldn’t give them much choice.

On January 2007, the database of SSNs is published anonymously to the Internet.

Of course, the perpetrators of this civic act would need to be careful to remain anonymous, lest they suffer a hailstorm of lawsuits, possibly even spurious claims of ‘terrorism’. But in the end, we would live in a better world–one where SSNs were clearly only useful for identification.

Dirty Money for PBS

If you watch New Hampshire Public Television (WENH) for a while, chances are you’ll see an advertisement stating that the programming is sponsored by BAE Systems of New Hampshire. The TV ad shows happy smiling families playing baseball to raise money for the American Cancer Research Fund, and ends with the slogan “BAE Systems: A Global Company With A Local Heart”.

Heartwarming stuff. Unless, of course, you know who BAE Systems actually are.

They used to be known as British Aerospace, until they merged with Marconi in the late 1990s. They’re the UK’s number one defense contractor, and one of the largest arms manufacturers worldwide. They make warplanes, ships, submarines, radar systems—everything from gyroscopic compasses to weapons of mass destruction.

One of their more well-known products is the Hawk fighter-bomber. During the 1980s and 90s, BAE Systems sold 40 Hawk aircraft to the Indonesian government, who used them to help with the attempted genocide in East Timor. The UK Labour government shipped them another 16 after the genocide started, saying that they were powerless to revoke an arms contract signed by the previous government. Of course, that doesn’t explain why they extended the contract to avoid it expiring during the EU arms embargo on Indonesia…

You might also know BAE Systems via their subsidiary Heckler & Koch. The H&K MP5 was standard issue for Indonesian troops in East Timor during the genocide. To get around inconvenient trade embargoes, BAE Systems licensed the design to MKEK, a Turkish company who were happy to sell the weapons to Indonesia. (You may also remember seeing one of them pointed at Elian Gonzales.)

BAES are on very good terms with the US government too, to the tune of $5 billion a year. (That’s a very nice tune, it goes cha-ching.) BAE gets special treatment from the Pentagon, being allowed to trade as if it was a domestic arms company. That means lots of juicy contracts fighting “The War Against Terrorism”.

They’re also close friends with the regime in Saudi Arabia, allegedly thanks to their purchasing houses, yachts and hookers for Saudi officials via a corporate slush fund. In 1995, investigative reporters caught BAE staff on film offering electroshock batons for sale as torture equipment, and admitting that they had sold 8,000 to the Saudis and thousands more to the Chinese, who are particularly fond of using them against Tibetans. The great thing about BAES electroshock batons is you can torture someone for hours and not leave a mark. For some reason, they fail to mention all this on their home page, merely stating that they are “innovating for a safer world”.

When the UK government tried to start an anti-corruption initiative, BAE Systems actually refused to take part. In fact, they are so sleazy that the Bush administration accused them of being corrupt. All of which makes the WENH ad rather surreal, but not as surreal as the fact that BAES have the titanium composite cojones necessary to publish a corporate social responsibility page.

So, next time you see the happy smiling faces of the BAE Systems children on WENH, perhaps like me you’ll wonder what happens when one of them asks “What do you do at work, Daddy?”

Yes, I know, all the bad things happen in other parts of BAE Systems. The New Hampshire people make teddy bears for orphans. No, actually they’re the Information and Electronic Warfare Systems unit, who make the guidance systems for the happy fighter jets that fly over Aceh.

It’s that day again

I’ve already seen several people post comments saying “What could make a person want to do such a thing to us?” It distresses me that America is apparently still no closer to understanding the answer to that question.

Until the average American citizen understands why terrorists hate us, and puts pressure on the US government to change its policies accordingly, we will only see more and worse terrorist atrocities carried out.

So with that in mind, here is a reminder.

At the end of the 1991 Iraq war, thousands of Iraqis fled Kuwait. A convoy of conscripts (mainly Kurdish) and non-military workers tried to head back to Iraq via the Basra road. This largely defenseless convoy of fleeing trucks was attacked by US air forces using napalm, rockets and cluster bombs. The result was horrific slaughter, with tens of thousands dead. This gruesome targeting of civilians was described by the US pilots as a “turkey shoot”.

Remember, Saddam had been given the nod by the US Ambassador in Iraq to mount the invasion of Kuwait. What kind of people tell you they don’t mind if you take over Kuwait, and then drive you out and burn alive thousands of retreating civilians when you do? Try to imagine how you’d feel if that had been the treatment given to the Americans who pulled out of Vietnam in the 1970s.

RIAA dream

Question from Dan

What’s the last dream you remember having?

Well, I dream practically every night, and I remember most dreams for at least a few hours, but most of them are pretty mundane. Last night’s was mostly concerned with a party my parents were having and trying to make some decent coffee for two of the guests, sara, and myself. I assume you’d like to hear about something more interesting.

The last amusing dream I had started with a UFO crash in Florida, which had happened some time in the past. I was part of a loosely associated gang of hackers and political ranters with an interest in such things, and we eventually discovered that an alien in human form had survived the crash and made his way north.

After much convoluted plot and some espionage action, we discovered that the alien had reported back to his planet, and a full-scale invasion had been planned. However, rather than take on the might of the USA directly, the aliens had opted to infiltrate and take over the record companies and the Recording Industry Association of America.

Their plan was sinister and brilliant: they would persuade the US government that the 70%+ of citizens swapping files on the Internet were dangerous copyright terrorists, and get them all locked up in jails—at tremendous profit to the private security firms running the jails, which they also controlled.

Once that was done, the full-scale invasion would proceed—because the landing ships would easily slip by the nation’s missile defenses, and by then there wouldn’t be enough citizens free to defend the nation on the ground.

On discovering this plot, we did our best to bring it to the world’s attention by engineering media events. Eventually we managed to goad the RIAA into taking off the mask and bringing in the dropships early to colonize the Earth with their evil alien spawn.