Thursday, April 22, 2010

David Letterman on the Goldman Sachs Accusations

Just for the fun of it, Here's America's favorite late-night
funnyman on the Goldman Sachs deal:

Enron On The Hudson: Goldman Circles The Wagons (part 2 of a series)

The Vampire Squid isn't dead yet.

After what many perceived to be an "opening error" in its
ill-timed response to the SEC action (an opinion I do not
share), The Squid has got its act together and is pressing
a vigorous defense on all fronts.

As expected, Goldman Sachs "vigorously denies" any
wrongdoing in any of its actions regarding the
Paulson- Abacus deal, claiming that the allegations
raised against it are "unfounded both in fact and law",
and that it fully expects to prevail in court. Moreover,
The Squid has been busy contacting its many alumni
at The Fed, The Treasury, the regulatory agencies and
on Congressional staffs, distributing "talking points",
and getting its side of the story told to those in positions
of influence.

And Goldman has also been very active in the media
(especially on CNBC), saying that this was a "normal"
CDO deal done by large, sophisticated investors who
were very experienced in these matters and knew full
well the risks involved.

In short, Goldman Sachs is doing what they do so
very well anytime they are subjected to scrutiny -
circle the wagons, take their opponents under fire,
and mount a huge media campaign to both demonize
and discredit their detractors.

And as of right now, the strategy appears to be working.
Goldman stock, after taking a 22-point beating on Friday,
appears to be recovering, closing up slightly today. The
Wall Street Journal, which under the ownership of
Rupert Murdoch has become an uncritical cheerleader
for much of what happens on Wall Street, has been
editorially questioning the "timing" and "appropriateness" of
the SEC action. This same theme has been picked up by
Congressional Republicans, who feel that Goldman Sachs
is being used by the Obama Administration to unfairly
strong-arm the Congress into approving a "flawed"
financial reform bill, in much the same manner that
they used the Health Insurance industry as an "ogre"
to pass the health care bill. And, as the SEC decided on a 3-2
party-line vote to prosecute Goldman in the first place,
the Republican minority on the Commission is preparing
to take the unprecedented step of going public with their

If you're going to take on The Vampire Squid,
you had better be prepared for a fight. And Goldman,
in response, has served notice that it intends to press
its case without pause or letup in the courts
of law and regulation, in the Halls of Congress, and
most importantly, in the court of public opinion.

And, judging by its win-loss rate thus far, The
Squid just might win this one. The court case will
hinge on narrow interpretations of securities law
applied to a complex and contradictory set of facts.
The divisions inside the SEC over whether or not
to prosecute will be fully explored in discovery.
Goldman has powerful allies in the financial media
and in corporate boardrooms around the world, and
rather than run away, many of these folks are speaking
out in Goldman's defense. And in Congress, where
many of the "gray areas" of Goldman's actions might
well be made illegal by financial reform, Goldman is
busy calling in its chits.

It will be, in the words of Winston Churchill, " a struggle
both grim and great, with neither mercy nor quarter
granted by either side". And in the final analysis, it will
depend on whether or not the SEC and the Administration
have the stomach for this kind of thing.

Judging by what I've seen so far, I'm hoping for the
best but I'm not optimistic.

In the next installment, we'll examine (from a
devil's advocate point of view), the merits of
the defenses Goldman is raising and the implications
for the rest of Wall Street and and the cause of
financial reform.

Stay tuned - it's about to get very interesting.

Saturday, April 17, 2010

Goldman Sachs: Enron On The Hudson (first of a series)

The infamous Vampire Squid may finally have met its
Calamari moment.

In a stunning blow to its image as the all-powerful,
unquestioned ruler of Wall Street, The SEC has formally
charged Goldman Sachs with fraud concerning a major
"synthetic CDO" deal.

This transaction, labeled ABACUS 2007-AC1, was conceived
by Goldman Sachs and its hidden "partner", famous hedge
fund operator John Paulson, as a means of "shorting" the
subprime residential mortgage market during the heady
days of 2007.

Now, there's nothing really wrong with "shorting" a market,
a security, or an expected future financial event. For every
Bull, there has to be a Bear - and the proper expression of
both positive and negative market sentiment is necessary
for financial markets to function properly.

But ABACUS 2007-AC1 wasn't set up as a vehicle for investors
to take short positions in the residential mortgage market.
Rather, it was a scam set up secretly by Goldman and Paulson
that required the participation of unwitting "long" investors
to succeed.

And the story reads like something out of a crime novel.

First of all, a little explanation of what a "CDO" like ABACUS
actually is. A "CDO" is a special purpose entity ( a shell
corporation), that purchases securities, arranges
them in slices ("tranches") according to credit, interest rate,
and maturity risk, and then issues notes to the investors,
who can pick and choose among the various tranches
according to their appetites for risk and return.

Properly structured, CDO's assist in providing liquidity
to the fixed-income marketplace, while offering sophisticated
institutional investors a greater range of choices than would
otherwise be available. And, to further assure the
integrity of the offering, several parties, each independent
of one another, work to put the deal together.

The securities to be purchased by the CDO are selected by an
independent adviser in accordance with the goals set forth in
the offering documents. The CDO is managed by another
party, independent of the others, to receive payments
of principal and interest from the bonds and make payments
to the investors. Each bond or bond pool purchased by the CDO
is rated for credit and other risk by an independent ratings
agency - either Moodys, Fitch, Standard and Poors, or all three.
Finally, the CDO sponsor, in this case Paulson, puts up a small
amount of equity to serve as a loss buffer in case of defaults
in the bond portfolio. Normally, when the CDO is dissolved
(usually in 3-5 years), this equity is recovered, plus a profit,
from the onward sale of the remaining portfolio.

So far, so good - except in this case, as Goldman and Paulson
had intended for this CDO deal to go bad, none of these
protections really applied. The selection adviser (a little-known
company called ACA), was brought to the deal by Paulson.
In an "efficiency" move, Goldman elected to act as CDO
manager itself - removing a critical level of protection
for the investors - as it had already created some nineteen
other similar "deals" in the ABACUS series and thus had
more "experience" in this type of transaction. And, when
it came to rating the bonds in the CDO - which can only
be charitably described as "toxic waste" - Goldman put
immense pressure on the ratings agencies to give them
"investment grade" ratings (AAA through BBB-).

A more truthful rating for the whole deal would be
one word - junk.

With the deal in place, then, all Goldman had to do
was find some willing "marks" or patsies to fund it.
And for this it turned to a 27-year old Managing Director
in its London office - Fabrice Tourre - who had helped put
many of the ABACUS deals together.

This enterprising Sorbonne and Stanford-educated
Frenchman had a Rolodex full of European institutions
eager to get in on the never-ending bull market in U.S.
residential real estate. And, using the exalted reputations
of Goldman and Paulson as parties "already in" on the deal,
he found two players - ABN Amro, a Dutch bank,
and a mid-size German bank, IKB, to take major positions.

Just one thing was omitted by M. Tourre - that Goldman
and Paulson were in on the deal all right - but on the
short side, betting that it would fail.

And once ABN Amro and IKB ponied up, it was time to
sting the marks. Goldman and Paulson loaded up
on collateralized debt swaps ("CDS's") to insure their
payoffs. Only these CDS's had one unique feature -
unlike most CDS's which would pay off only on a
default, these would pay off on a mere rating agency
downgrade. Among the insurers on this deal were
ACA Capital, Ambac and AIG - all of whom would
ultimately collapse in the wake of this and other
frauds perpetrated by Goldman and the other
"major players" on Wall Street. So eager was
Goldman to start collecting on the scam that it even
advanced Paulson the money for its "equity"
portion, in exchange for a fee.

And just as Goldman and Paulson intended, no sooner
did the deal close than it started to go south.
Within three months, all of the ABACUS tranches below
AAA had been downgraded - triggering the payouts to
the perpetrators. Within six months, half of the tranches
were in default. And within ten months, the entire CDO
was bankrupt.

And the outcome?

ABN Amro was seized by Dutch regulators
as a result of this and other deals and sold off
to Royal Bank of Scotland. IKB was partially
nationalized and restructured by the German
government. Many of the clients and shareholders
of both these institutions lost their shirts.

Bernie Madoff couldn't have done it better.

And at this point in time, Goldman wasn't
alone in creating these types of toxic scams -
it faced brutally intense competition from JP Morgan,
Merrill Lynch, Bear Stearns, Lehman Bros. and Citicorp
for this dubious type of "business". In its defense, Goldman
will no doubt make much of the fact that "everyone was
doing it", and that had it passed on this particular deal,
Paulson would have just gone elsewhere.

And from where I sit, that's just bulls**t - just because everyone
else in your industry is doing frauds and crimes doesn't mean
you have to. Besides, if you're Goldman, you've got an edge
the others don't have - you've got all the politicians and
regulators in your pocket, if not in fact on your payroll.

And now all that seems likely to go away. The investigation
of almost every deal Goldman has done in the last ten years
will now get under way. Goldman's "business practices"
in other areas of finance are now going to get intense
regulatory and enforcement scrutiny. The lawsuits are
already starting, and criminal indictments may shortly follow.
Goldman's friends and protectors in high places are already
running for cover.

Let's see - off-balance-sheet "special vehicles", hidden
"inside partners", manipulation of ratings, balance sheets,
income statements, assets and liabilities - hmmm ... we've
seen this movie before, folks.

Remember the "Energy Company that became a Hedge Fund"
down in Houston called Enron? Well, we now have Enron II,
with Lloyd Blankfein playing the part of Kenny Lay, with
Gary Cohn as Jeffrey Skilling and David Viniar as Andy

Yes, It's Calamari Time for The Squid - and I like mine
fried and breaded, with plenty of Marinara on the side.

Thursday, April 15, 2010

More Eurozone Trouble - Will Portugal or Ireland Be Next?

(h/T Economix (NYT), The Baseline Scenario,
The BoomBust Blog
and Zero Hedge)

As we noted in our last post, Greece is saved for now.

All that remains there is for the Greek Government
to "activate" the package and the aid Euros will begin

Despite some lingering grumbling from Germany,
the deal will ultimately go through. The markets,
though, are not convinced.

As of today, the yield on Greek debt on the London
markets was 6.86% - down from 7.83% last week,
when it really looked as if a Greek default was going
to happen. Even though the CDS (default insurance)
rate is now up to a staggering 453 bp, the ECB and IMF
have bought Greece at least a year or two's time to
straighten matters out.

Attention will now turn to the next two basket cases
in the EU infirmary - Portugal and Ireland.

And of the two, Portugal looks to be the more immediate

Like Greece, Portugal's two main industries are
agriculture and tourism - trades that are principally
carried on with other members of the EU. Industry
is practically nonexistent, and Portugal lacks
Greece's foreign-exchange-earning Merchant
Marine. And, also like Greece, the principal reason
Portugal is in trouble is that the Government spent
far beyond its means on social services and transfer
payments, resulting in a fiscal deficit of 78% of GDP
(compared with Greece's 114%).

This deficit, like Greece's, has been financed with
foreign borrowing (mostly from other EU countries).
And, again like Greece, the additional borrowing has
gone to finance interest payments on current debt.
As a result, Portugal's deficit as a percent of GDP will
reach Greek levels by 2012 - at which point the money
tap may well dry up.

And making this even more difficult is that all three
countries are saddled with the Euro, which prevents
the far-reaching fiscal adjustments necessary to cure
the problem.

To use The Baseline Scenario's example, Portugal
this year forecasts a primary deficit of 5.2% of GDP
(all budget items less interest). Assuming
that the ECB/IMF consortium offers them the same
terms as Greece, Portugal will have to run a 10.4%
primary budget surplus almost immediately - which
could only be done with drastic budget cuts and
massive unemployment.

And thus far, with a total deficit of 8.3% for the
current year and 8%+ forecast for 2011, 2012 and
beyond, the Portuguese government's policy thus far
has been to hope and pray for a global economic
miracle - which everyone except the Portuguese
recognizes is not about to happen.

And Ireland is in even worse shape. Thanks to a
record fall in GDP last year of 7.5% (the highest
in the Eurozone), Ireland's budget deficit for
the current year is 11.3%, with 12.5% forecast
for 2011 and 13.3%+ for 2012 and beyond.

However, the Irish government at least took action.
It imposed layoffs and wage and pension cuts on its
public employees, and raised taxes on everyone else.
As a result, despite its problems, the interest rate
on Irish government debt is only 1% higher than
that of rock-solid Germany.

But in Ireland's case, it was the private sector, not
the public, that caused the problem. As a result of
Ireland's positioning as the "Celtic Tiger" - the
low-cost, low-tax, low-regulation alternative
to mainland Europe - Ireland quickly developed
an outsize financial sector relative to the size of
its economy. As of 2008, the assets of Ireland's
banking system were two and a half times its GDP.

And then the fun began. Taking a leaf from the
American savings and loan playbook, Ireland's
property developers began buying up banks, which
led to an orgy of speculation and overbuilding.
Property prices more than doubled between 2002
and 2008. When the crash hit, property prices fell
by half, private sector unemployment doubled, and
the number of non-performing residential and
commercial real estate loans skyrocketed - all in
less than a year.

And like their American cousins, Ireland's
politically well-connected bankers were bailed out.
Result - the banks kept the upside, and almost all of
the defaulted loans were transferred to the public
sector, more than tripling Ireland's total public debt
as a percent of GDP to 87%. Today, over one-third
of all property loans in Ireland are either already
defaulted or "under surveillance" (i.e. underwater) -
an astounding 80% of GDP.

Translation - had the Irish government made their
banksters suffer , they would today be one of the
strongest economies in Europe.

And that's the biggest issue - in both Europe
and the U.S. When you create moral hazard, you
don't get a fix - just more of the same problem,
whether the guilty parties are bloated banksters or
a bloated public sector. And at some point,
someone in a position of power somewhere
is going to wake up and say: "Enough!"

Judging from the way things are going just about
everywhere, The Thinking Nationalist thinks
that that long-delayed moment of truth will come
sooner rather than later.

Monday, April 12, 2010

Greece Is Saved - For Now.

(h/t Peter Boone and Simon Johnson, The Baseline Scenario)

"The Europeans announced Sunday they would provide
thirty billion Euros of assistance to Greece, amid informed
rumors that the IMF would provide another 10- 15 billion.

" With 40-45 billion Euros in the bag - more than the market
was expecting - the Greeks have time to make changes.

" The Greek government, helped by the market threat of
a near-term collapse, appear to have strong-armed the
other Eurozone countries without making efforts to
change seriously their (Greek) fiscal policy. This is
good for near-term calm, but does not solve any of
the problems now inherent in the eurozone.

" Often, assistance packages of this nature just help
"the smart money" to get out ahead of a default.
This could be the case here; 40-45 billion total Euros
could last roughly one year. Both Russia and Argentina
got large packages in the late 1990's but never regained
access to private markets, so eventually everything
fell apart.

" Sunday's package should make it possible for Greece
to borrow short-term but it takes courage to lend for
5 to 10 years to the Greeks unless there is much more
fundamental change.

" There are two key things to watch for:

" 1) Is the global recovery so strong that Greece's economy
picks up fast and their budget deficit comes down fast?

" 2) Will the IMF and Greeks now come up with a real
austerity program that sharply cuts the deficit so that
a year from now, when the official bailout money could
run out, the market is receptive to Greek debt?

" The danger for private debt holders is clear. Sovereign
loans are invariably treated better in a restructuring
than private debt. So the European aid in some sense
squeezes private debt holders. They will be pleased that
there is no near-term default, but it means their recovery
value has gone down if things get bad again. Greek
long-term yields will probably stay high. The key market
reaction to watch over the next 6-12 months will be
long-term yields, and whether these come down to
levels that imply low risk of default.

" And there is still definite risk of contagion. The
actions of the EU show that they are willing to
intervene when yields get up to 7-8% on long-term
debt and markets close off to a nation.

" And what does this mean for Portugal or Ireland?
People holding Greek debt lost a lot of money in the
last few months. That will not come back soon, as
market will for a long time be wary of buying their
debt - especially as Fitch just took the Greek rating
to BBB minus - i.e. the floor at which the ECB lets
banks borrow against ("repo") government debt.

"The Portuguese, therefore, are not at all out of
the woods. If they do not start making serious
moves towards cutting their deficit, they are
next for a test.

" Surely the Eurozone will bail out Portugal
next - but where would it stop after that?
The stronger Europeans, by coming to Greece's
rescue at this time with little conditionality,
are effectively showing all the weaker nations
that they too can get a package. This will
undoubtedly reduce the incentive for
needed fiscal reforms across the European

" We are still lurching from crisis to crisis
in Europe. "

My take on all of this, as "The economist
watching from the bleachers" :

First, as I predicted in these pages a few
months back, the ECB and the stronger
Euro powers would not let Greece go
down the tubes, and that a "rescue"
would also involve the IMF. That has
now happened.

Second, I do have a slight "bone to
pick" with the composition of the
package. Were The Thinking Nationalist
the governor of the ECB, I would have
preferred a guarantee of funds raised
in the private debt market to outright
direct aid, and would have induced
the IMF to proffer any direct cash
assistance required. With an ECB
guarantee, the coupon rate on new
debt might have been just a bit less
(although not in the sub-market
5.00- 5.125 rate that the ECB is now
contemplating), and with an IMF - blessed
austerity plan in place, confidence in the
market for Greek debt might ultimately
have been restored - especially if the
guarantee had been extended to the most
recent 12 billion Euro debt issue.

No doubt this option was considered -
and probably rejected as inadequate for
the task at hand. But now we have the
worst of both worlds - the current holders
of Greek debt will have to take a substantial
haircut owing to restructuring priorities (if
it comes to that), precious little will have been done
to restore real confidence in the Greek debt market,
and moral hazard will now have been broadcast
to the rest of the Eurozone as the plan du jour.

The line for aid will now form to the right -
please keep it orderly, folks.

And finally, 45 billion Euros will only get
Greece halfway there - estimates of Greek
needs over the next 2-3 years run from
80 to 100 billion Euros. But, we'll see.

Greece has bought precious time for now -
whether any good comes of it is still an
open question.

Sunday, April 4, 2010

Rent-Seeking and Public Employment - Time To Change

A relatively obscure economic concept has recently
come to the fore in the national economic dialogue.

That concept is Rent-Seeking.

As defined in Wikipedia and The Dictionary of Economics,
rent-seeking is defined as the extraction of unearned value
from economic transactions by manipulation of
the economic environment, rather than by earning profits
through economic transactions and the creation of added

And there are different types of rent-seeking behavior - direct
rent-seeking, which is an attempt to gain monopoly or oligopoly
control of a scarce resource, or collusion by market players to
control a market by rigging prices, allocating market shares,
and restricting output.

And then there's indirect rent-seeking - the pursuit of above
market returns through control of a legislative or regulatory
process, where the "rent" extracted is in the form of either
regulatory barriers to market entry or tariffs, tax breaks or
subsidies not generally available to those outside the favored
group or class.

Of the two, the latter is by far the more dangerous, as it implies
control of legislative or regulatory processes to extract "rents"
from the public at large and funnel them to the favored recipients.

And, according to classical economic theory, when rent-seeking
exists in a market, more and more players abandon profit-seeking
for the greater returns of rent-seeking. Ultimately, this causes a
fall in output and productivity, as not all players can become
rent-seekers and those who remain choose to withdraw from
from the market rather than see their profits reduced by
rent extraction.

And where do we see an example of all of these economic
pathologies simultaneously?

In Unionized Public Sector Employment.

To begin with, access to public employment is tightly
controlled, both formally and informally. Not only does
the prospective public employee have to jump through
many bureaucratic and regulatory hoops, but often the
only path to public employment is through an "informal"
connection to either an elected official or family members
already on the "inside". Further, public employment is a
monopoly, for which no corresponding demand exists in
the "private" marketplace.

And do Public Employees extract "rents" from the public
at large? In spades. Through unionized collective bargaining
and campaign contributions to the politicians who set the
wage and benefit scales, the wage and benefit "rent premium"
extracted by public employees have risen in some cases to over
30% compared to similar private sector employment.

And, as would be predicted by economic theory, more and
more people are seeking employment in the Public Sector
than in the private marketplace. According to the Heritage
Foundation, while the US private sector produced NO net new
jobs over the last ten years, total government employment has
risen by over 17%. And the Obama "economic stimulus" plan,
has, as predicted, resulted in both more government employment
(more rent seekers), and less employment in the private
sector (fewer profit seekers).

But now, a tipping point may have been reached. As more and
more private profit-seekers leave the market, either through
outsourcing to other countries (avoiding the rent-seekers), or
withdrawing from the market altogether ( refusal to pay "rents"),
economic output (upon which the rent-seekers depend), is falling.

And, in response, the politicians, who enabled the problem in the
first place, are now having to make some awful choices - namely,
which rent-seekers will be thrown off the gravy train?

If you follow the news, the talk in statehouses and city halls
all across the nation is about wage and benefit cuts, givebacks,
renegotiations, and even permanent layoffs, furloughs, and
terminations. And sooner rather than later, the federal
government will have to follow suit.

And this was all perfectly predictable.

In economic terms, once the aggregate amount of extracted
rents exceeds the amount of profit that could be produced
by the non-rent-seeking sector at any given level of output,
the whole scheme collapses.

And, in many parts of the country, we are now literally at that

The following video sums it up quite nicely (h/t Mish's Global
Economic Analysis)

Saturday, April 3, 2010

Tough Week For Michael Steele

It's been a tough week for Michael Steele.

Not only is the Republican National Committee
head having to live down the scandal of "fundraising"
at a lesbians-and-bondage themed West Hollywood
night club, but he's now having to answer new questions
about his RNC-paid expense account.

Then, there's the matter of charging his travel expenses
to the RNC while accepting speaking fees at $20,000 a

And, finally, there's the matter of just how effective he's
been in his main job - which is fundraising for Republican

Thus far, compared to his Democratic counterparts, not
very. Through the last reporting period, The RNC has
managed to raise only $9.5 million for its Congressional
arm, the RNCC. In the meantime, the DNCC, its Democratic
counterpart, has raised about $25 million for its candidates.

And all of this raises the one question that no one wants to
ask - why would a party that is largely composed of older,
rural, Angry White People choose a scholarly, moderate
Black Man as its head?

And, in my opinion, here are the answers.

First of all, the "lesbian nightclub" event would not have
come to light at all had the reimbursement not been
included in a required FEC filing and been seized upon
by alert liberal bloggers. In truth, the event was paid
for by a fundraising consultant, and reimbursed by
the RNC as a matter of course.

Now, despite the fact that this particular consultant
relationship has been terminated, there's a reasonable
explanation for the event. And it has to do with the sorts of
people that the "consultant" was cultivating - younger,
wealthy, creative entrepreneurial types who might
otherwise contribute and vote Democratic.

Needless to say, the party of Barney Frank would have
no problem with such an event; and the GOP is going
to have to compete for that demographic - socially
liberal, even exotic in their tastes,but receptive to a
conservative economic message.

And on the expense account thing, it's the price
of doing business. No Republican National Committee
head is going to be credible raising money from the
wealthy staying at Motel 6 on the road and hosting
fundraising dinners at Denny's.

Like it or not, if you are soliciting donations from
the wealthy, you have to travel in the same circles,
stay in the same hotels, and frequent the same restaurants
and resorts that they do.

You have to show that you belong - and that you get it.

And on the matter of $20,000 speaking fees at fundraisers,
Hailey Barbour, one of Steele's more illustrious predecessors
at the RNC, asked for and got up to five times as much. But
then, as a former Governor of Mississippi and head of the
Republican Governors Conference, he had just a bit more
heft and clout.

And Barbour didn't just fly first class - he flew strictly by
private jet, usually underwritten by the same contributors
he was wooing.

And on fundraising results to date, this is par for the election
cycle. The Republicans are challenging more seats than are
the Democrats in both the House and Senate - and the primary
season for Republicans is still a couple of months away.

And, because of the influence of the Tea Party, the RNC is
going to wait until after the primary season to begin the
general election fundraising cycle.

It's going to make sure that its general election candidates have
reasonable chances of winning - and it knows, that come
Election Day, it's got the Tea Partiers in its pocket anyway.

But in one respect, Steele has been unusually effective. He's
doen a remarkable job in attracting genuine conservatives
who are Other Than White to the GOP banner.

No fewer than 33 conservative African Americans are competing
for House seats this time around. And there are similar numbers
of other minority candidates as well.

Unlike liberalism, the conservative theme of low taxes, limited
government, and individual freedom has a universal appeal
to hard-working folks of ALL races. And this time around, it's
the Democrats who can be effectively painted as the friends of
corporate rent-seekers and outsourcers and the loyal retainers
of Wall Street.

And the GOP this year cannot afford to let Sarah Palin and
the Tea Party steal its message.

Much as the Tea Party might have a gut appeal to true
conservatives, the reality is that a movement built on
conspiracy theories and a frank appeal to the racial and
religious prejudices of rural, uneducated White People
cannot win nationally.

And Michael Steele gets that. And he's doing something
about it.

But, we'll have to wait until November to judge.