Every once in a while I run across something online that cries out for broader exposure, and this is just such an item. Hilarious. Enjoy and share!

General McClellan Responds to Sarah Palin

Dear Governor Palin,

George B. McClellan here. I am writing you urgently about last evening’s goddamned debate, where you cited my comments on Afghanistan as a defense for Senator McCain’s proposed “surge” in Afghanistan. The goddamned media is really all over you. They say you didn’t mean to refer to me. That I’ve been dead since 1885, and you clearly meant General David D. McKiernan. They say you don’t know what you’re talking about. Don’t worry Palin, you stick to your guns. They said the same things about me after Antietam, goddamn sunken road. You’ve got a good future ahead of you.

The problem though, Palin, and I’ll be blunt, is that history has not remembered me kindly. They say that I couldn’t put away Robert E. Lee. They say I was a coward. They say I was elected Governor of New Jersey and didn’t even know it. I’m pretty fucked.

Accordingly I respectfully ask that you refrain from quoting me or implying my support in this campaign. People just don’t like you guys. It won’t do.

Seriously Sarah, just leave me out of this. I fought hard and I loved those men of the Potomac. I know from strategies that work and strategies that keep you on a goddamned bloody lane years longer than you need to be. You’re on the wrong side of history here, just like me. You’re running against goddamned Abe Lincoln. You can’t win this and you shouldn’t.

Give John my best.

Sincerely and most respectfully,

General George B. McClellan

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5 Responses to “Just had to share this.”
  1. michael says:

    Second paragraph first: that’s exactly right. Buying “bad” assets does nothing to address the cause of their decline. Buying commercial paper is much simpler and more effective—and did not require a bailout bill.

    First paragraph: assets become liabilities when their market value falls below the price paid for them. That is all I meant. Part of the problem, however, is that a market exists in time: the same assets sold over a period fetch more than they do is sold all at once, but the prospect of declining prices induces such simultaneity. Write-downs are voluntary, and there is strong incentive to avoid them. Declaring contracts invalid sets an immediate price floor, discourages selling and eliminates the protracted speculation that undermines confidence. That, in turn, helps restore liquidity, since firms do in fact have cash on hand which they are reluctant to circulate so long as asset prices are in doubt. Ironically, it is worry about purely speculative values that keeps actual cash out of circulation. Write-downs don’t fix this problem, at least not efficiently, since they rely on the same speculative calculations that is causing the problem.

  2. I think one of us has something confused here. If you own someone else’s debt, or a securitized version thereof, or a CDS protecting it, that’s an asset, not a liability. The only time a CDS is a liability is when you’ve *sold* one to someone else. The problem with the balance sheets is that the assets were booked at “AAA” values, but now it’s clear that not only are many of the underlying debts worthless, the CDSs that were purchased to “hedge” them are *also* worthless, since the companies that sold them lack adequate capital to back them up. (No required capital reserve ratio on CDSs, remember?) Thus, whether the government voids the assets or the companies zero them out, the effect is the same — fewer assets on the balance sheet, and thus less collateral to back up any subsequent borrowing. Under those circumstances, such capital as remains out there still doesn’t move.

    That’s why direct capital injections by Treasury makes more sense. Just buying the assets props up some minimal value, but doesn’t necessarily inspire anyone to take it seriously enough to lend based on it.

    As for longer-term alternatives… there are plenty under discussion out there, including several I’ve suggested. Let’s hope the new Congress takes its responsibilities seriously. (Heck, even the old one could kick-start things, if it has a meaningful lame-duck session after the election.) A lot of the usual partisan boundaries seem to be breaking down over this stuff, so it’s an opportune moment for real reform.

  3. michael says:

    Well, I guess I did post in the wrong place; don’t know how that happened. But I have nothing to say about McClellan.

    As for the credit crunch, I’m not sure write-downs are equivalent to voding the contracts. The derivatives are not assets but liabilities which turn balance sheets upside down when the underlying assets lose value. Void the liabilities—as contracts entered into illegally—and the pressure on the assets dramatically decreases, since the gap between the two no longer exceeds cash on hand (i.e., capitalization). The capital shortage compounds the problem by forcing depreciating assets onto the market all at once, depressing their value further. Since these firms own each other’s derivatives, voiding them all should be a wash, and firms are left with whatever capital they actually have, sans the fictious assets and equally fictitious liabilities. Write-downs treat both as real and compel firms sitting on billions no to lend that money.

    The buyout provokes a confrontation between Wall Street and Main Street, as one tries to get top dollar while the other tries to get top value. For taxpayers, it’s heads Wall st. wins (we overpay), tails Main St. loses (credit crunch gets worse). Whatever the final price we pay for bad assets and whatever stake we are granted in the firms, both transactions continue to stake too much on a market mechanism that is faltering. I’m trying to think of alternatives that break with this mechanism altogether, or at least keep it from destroying itelf. Basically, this means not trying to deliver some small piece of what market participants are seeking—the problem being that too many of them are seeking it all at once—and instead encouraging them to stop seeking it.

  4. Think you probably meant this comment for the previous post. 😉

    Nonetheless, you make some good points here — in particular, this sentence is an excellent summary: “The trouble with derivatives (e.g., mortgage-backed securities and credit swaps) is that they objectify these speculative—read: imaginary—valuations and impose contractual obligations to monetize them.”

    It wouldn’t even take a court to void them; in the absence of any buyers to prop them up, the failures rippling through the industry would leave many firms with no choice but to write their CDSs down to zero. The problem is that under those circumstances, with those assets stripped away from their balance sheets, these firms would stand revealed as dramatically undercapitalized, and still wouldn’t be in a position to resume normal lending practices. The asset hoarding and credit freeze would continue.

    This is why the approach of a direct capital injection in return for preferred shares (rather that supplying capital indirectly by acting as a buyer for shaky assets) has been recommended by so many economists.

    The problem looks like AIG’s situation magnified to an industrywide scale, and the proposed solution is the same: buy ’em up, take ’em over. Treasury now has the *authority* to do this. Whether Paulson will choose to *exercise* it, rather than sticking to half-measures (i.e., buying up the assets) remains to be seen.

    Meanwhile, what did you think of the remarks from the good General McClellan? 😉

  5. michael says:

    Well, now the “experts” are going to try and distinguish “economic value” from “exchange value.” If they succeed, they’ll be the first. Ever.

    The distinction has befuddled economists and philosophers for centuries—or, if you include Aristotle, for millennia. Paulson does not strike me as the one to specify it, finally.

    The problem is clear: as Marx knew but often inexplicably forgot, value is irreducibly social; it is exchange value “all the way down.” Hence the mystery of bubbles: people bid up assets in the course of speculating that others will be willing to pay for them, and when they stop this wagering, prices collapse. None of this has anything to do with economic value, unless “economic” is simply another word for “exchange.”

    Put differently, empirical factors such as supply/demand become tokens in a fundamentally speculative and competitive valuation process. The trouble with derivatives (e.g., mortgage-backed securities and credit swaps) is that they objectify these speculative—read: imaginary—valuations and impose contractual obligations to monetize them. By virtue of this miraculation, market participants find themselves obliged to pay for nonexistent assets, and to pay amounts far in excess of even the speculative valuations.

    So the solution might lie where no one seems to be looking: void the derivative contracts. Forget valuing the underlying mortgages altogether (except maybe to stem the tide of foreclosures). The securities were barely regulated, and the credit swaps were insurance policies hiding behind a synonym. But all contracts are subject to juridical authority, and a court can void them on various technical grounds. Or Paulson can. Or congress. Then, the mysterious bubble debt evaporates along with the mysterious bubble valuations. Sure, the “losses” will be real insofar as some of the fictional money has been spent (as salaries and bonuses, mostly). But without the weight of this nonsense on balance sheets, the credit crunch should ease forthwith. Promises are made to be broken, after all.

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