If you haven’t been following the Daily Show vs. CNBC feud, it’s great entertainment. If we could just find a way to add back to the Dow all the points Jon Stewart has been racking up, the recession would be over. A year or so ago, Tom Friedman of the New York Times pointed out that we now get our best news from comedy shows, while supposed news shows (he appropriately singled out the shameless Lou Dobbs) purvey distortion and misinformation (read his column). I’m afraid he was right.
So two days ago, I was working out and listening to MSNBC’s Morning Joe. They had CNBC anchor Maria Bartiromo on to provide an “informed” perspective on the AIG bonus controversy. Here’s what I learned:
- She had no viewpoint on the bonuses and it was painful to watch her scrounge for one (right answer given her job: “It looks and is awful, but it’s also two tenths of one percent of the bailout money AIG has received. We have bigger fish to fry.”)
- Neither she nor anyone else on the program had a clue what a credit default swap is, which is pretty appalling since these bad boys are at the core of the meltdown. If your job is explaining what’s going on in the economy and you don’t understand what’s going on, how are you going to do your job?
The basics of this aren’t that complicated. A credit default swap is a contract in which you pay me a small amount of money and in return I promise that if a particular bond defaults, I will pay you the face value of the bond. If you own the bond, this is called “insurance.” If you don’t, it’s called “gambling.” There are about $50 trillion dollars of these bets floating around. AIG ran by far the biggest casino. The government bailed it out in order to enable it to make good on these obligations, believing that if AIG defaulted, the institutions that it failed to pay would collapse. I’m not sure that’s true since many or most of these obligations stem from “gambling” rather than “insurance”. But that was the government’s rationale.
The collective cluelessness on MSNBC became clear when the discussion turned to outrage over the fact that a big chunk of AIG bailout money is going to find it’s way to Goldman Sachs. Ms Bartiromo looked ashamed when she acknowledged that this was something she already new. But she was not able to explain the obvious – AIG owes that money to Goldman because Goldman bought a bunch of now-in-the money credit default swaps from AIG.
In truth, I really don’t expect sharp insight on the meltdown from Ms. Bartiromo, let alone the mostly-political wags on MSNBC. I do, however, expect it from the Wall Street Journal. So I was surprised to see this headline on yesterday’s front page: Hedge Funds May Get AIG Cash. It seems that through crack investigative reporting, the Journal has learned that a bunch of hedge funds shorted the housing market by buying credit default swaps from. . .wait for it. . .AIG.
I’m reminded of Captain Renault standing in Rick’s and declaring, “I’m shocked, shocked to find that gambling is going on in here!” I’m also left wondering how we as a country are going figure out constructive, rather than knee-jerk, reactions to this mess when the people who are supposed to inform us about it clearly don’t understand it themselves.