New post everybody! Just sitting here!
I'm really curious as to whether everyone heard about this weeks ago and I'm late to the party, or what.
I feel like i was vaguely aware of this about 1.5 weeks ago. Mostly through FB headlines I didn't feel like clicking on. This is, sadly, a reflection of how most of my news awareness goes these days.
I think you're late to the party.
In a way, I think it was obvious all along this was happening, and all Bloomberg News did was get enough specific information to make the case unambiguous.
This is one of the few left-right unity issues. Auditing the Fed was proposed by Feingold, Sanders, and Kucinich as well as Ron Paul and many more orthodox conservatives.
I'd heard the number $7.7 trillion, and had not bothered to figure out what the hell the stories were about.
In a way, I think it was obvious all along this was happening,
In what way?
Wasn't the money basically used to underwrite the millions of short-term loans that companies use every day (rolling over debts and meeting payroll)? That's the way I read it about a week ago.
3.2 gets it right. We knew trainloads of at least partly undisclosed money and support were going to the banks in one form or another. $7.7 trillion just puts a number on it. It doesn't seem higher than I would have expected (given that it includes guarantees and the like).
(Of course, I haven't read the link. Maybe there's more here than meets the eye?)
This is, sadly, a reflection of how most of my news awareness my inability to stomach one more piece of soul-crushing bad news goes these days. (Cf. suicide bombs, global warming, rudderless Democrats.)
Yglesias actually nailed this one: http://www.slate.com/blogs/moneybox/2011/11/28/how_the_fed_s_generosity_made_13_billion_for_america_s_biggest_banks.html
We knew trainloads of at least partly undisclosed money and support were going to the banks in one form or another.
Why are they claiming that law-makers were so utterly clueless, then? Just shitty journalism?
From the Yglesias link, "DEFENSIBLE"?
I clearly don't follow this stuff very closely.
I just find the sums of money grotesque, when we're simultaneously quite willing to let people live in poverty.
It was known that money in some large amount would be given to certain banks. Looking at the numbers and the details makes it look worse, because some of the biggest malefactors were rewarded, conflict of interest rules were ignored, etc. "Pay no attention to the man behind the curtain". Secrecy allows people to remain complacent.
I wish I'd posted this with a commentary of "Well, this is no big deal." Then all you contrarians would be making satisfyingly vengeance and pitchfork comments.
I too saw headlines about this a while ago and didn't click through because it was just one more awful thing. The headline was basically "Huge scam actually four orders of magnitude larger than you thought."
I don't know why some atrocities spur me to action and others make me look the other way. I wish I could regulate this part of my behavior more rationally.
In any case, this has made Kucinich join Paul in calling for abolishing the Fed. It does seem reasonable now.
abolishing the Fed. It does seem reasonable now
I'm willing to wager that if Congress alone had been responsible for dealing with the financial crisis, we'd have liked the end result a lot less.
17: Not if we outsourced it to Iceland.
I'm with Yggles (and upetgi) on this. I'm not too fussed that the government erred on the side of over-protecting against the collapse of the banking system, even though that meant the jackasses who caused the crisis got a windfall. But there's lots of room to be outraged that at the same time, the rest of us get austerity because we've been so very very naughty.
The point is that the government should have been giving everyone lots of free money. It's bad that they gave it to the bankers and not to the rest of us, but the way to fix that is helicopter drops of cash not destroying the banking system.
For the record, the OP just has one line of content from me:
Austerity measures and government cutbacks can go suck on a tailpipe.
I do not think that there is a good solution; shadow banking credit markets are even less trustworthy or manageable than large banks with venal management. It would have been nice for the CFPB to have had teeth and angry and competent leadership, but that did not happen. Geithner should go. It would be satisfying for CEOs and another layer of management to suffer horribly on pay-per-view, but banks where senior management were heavily invested in the bank did just as badly as the others. So unfortunately there's no reason to believe that punishing managers will produce better behavior in their successors,
Who should allocate resources, and what should they be obliged to report? Both managers of money and their regulators have failed miserably everywhere. Beyond the weak steps of a few personnel changes and a transaction tax, I don't see how to improve things.
I read Thoma and Yves Smith online to stay informed. What revenge fantasies seem appropriate? Sending the tanned heads of banks to service retail loans in Juarez or Norilsk?
I'll bring the pitchforks. If the Fed is willing to not only lend money to the guys who broke the economy at non-penalty rates, but to give them an enormous profit, they haven't done anything to prevent a crisis. They've just delayed it.
I wouldn't mind getting some money.
What revenge fantasies seem appropriate?
Focusing on policies which reduce unemployment. Socialized healthcare. Affordable housing and ending poverty.
19 and 20 make perfectly good sense to me, and I basically agree (that is, I'm perfectly glad that the economy and commercial paper market didn't collapse even more than it did in 2008) , but something about the politics seems off.
It just doesn't seem possible for the rest of us to get helicopter drops of money until we've come to terms with the problem that the bankers are our enemy, they don't deserve their wealth, our debts should be forgiven, and that they should be relatively impoverished in order to increase the well being of the rest of us. Put differently, we're never going to get broad-based social spending without class warfare.
Oh, some environmental protection revenge fantasies, as well.
They could have disciplined the banking system (that's what they did when they had a crisis in Sweden) but instead they rewarded it, because almost everyone on the public side was in the pocket of the banks. The causes of the collapse weren't addressed, no one was given any motive to do things differently, and plenty of malefactors were rewarded.
All in all, including the 10 years of unemployment and the likely changes in government policy, this marks an irreversible and progressive change for the worse in American life. The system failed and the bad guys won.
I'm not indignant because basically I think the game is over and am just figuring out how to finish my remaining years and hopefully help out my family.
I'M NOT DOING ANYTHING. CALL ME!
I'M GOING TO KICK THEM IN THE FACE!
31: Nice. Nicer if Steven Seagal weren't less flexible than a taxidermied bear, but nice.
13:Yglesias couldn't fix his dick to his thigh with a staplegun.
$13 billion in profits?
Fuck people, we bailed out the shareholders and bondholders ( and hedgers and...)
13b off a couple magnitudes.
(Das's Extreme Money still has too many light asides and digressions, but really got going on structured finance about 1/3 of the way through.)
I read Thoma and Yves Smith online to stay informed.
If you just work as little on Thoma's sidebar, like follow one you like a day, Konczal or Krugman, those two are a great start.
Was this to suck me in, heebie?
There are 100s of trillions in structured legal fraud floating around. Billions are created every day. Any sane credit and debt has been devoured in it. There is no fucking sane finance left. Gone. All jungle and madhouse now.
The Das is largely a list of fucking crimes. I could cut-and-paste stories, like Jefferson County or Narvik, Norway or gold futures in Australia. Want any?
All the time that the banks were selling bogus loans, they were refusing to lend my brother money for his business at less-than-loan-shark rates. The other loans were subsidized and guaranteed, his wasn't.
What a bunch of gloomsters. Things have always been this bad as far as intelligent decision-making goes. Geithner should be replaced, and some of the energy of OWS could have gone to making McConnell less popular.
If debts are forgiven, who should lend to cover next year's deficit?
environmental protection revenge fantasies
Kevin Costner could star, maybe as a heroic civil servant protecting the water table or delivering the mail.
The emperor Valerian was used as a footstool by a Persian ruler, then stuffed.
Okay.
The Fed loans Citi* 10 billion dollars
By law Citi can call that capital and leverage it and loan Suisse Generale in Paris 100 billion dollars
SG has looser laws and can leverage 30-50 times and now has 500 billion dollars to gamble with.
This is what was done in 2008-2009, partly to cover losses on MBS bullshit that CITI sold to SG.
But most of the umpteen billions at SG are still around in funny money SIVs and instruments and derivatives that haven't been called yet and are still flying around at the speed of light.
"Whomever
I agree with 28.3, and sadly I have lots of remaining years. I need to increase my cheesesteak uptake.
If debts are forgiven, who should lend to cover next year's deficit?
I fail to see how a program of "write down the principal underwater homeowners owe on their mortgage to match the current market value of their home, so they will no longer be underwater, combined with refinancing at a lower rate" would bankrupt or eliminate the banks. It might well save some of them. It would increase demand in the economy as a whole. And it certainly wouldn't cause banks to cease being interested in buying US treasury bonds, thus funding the deficit.
But I'm now well out of an area where I have any expertise at all.
Amaranth was a $9.2 billion multistrategy hedge fund named after the Greek amarantos--"one that does not wither" or "the never-fading flower." In August/September 2006, Amaranth lost $6 billion, almost twice the loss when LTCM collapsedStarting life as a low-risk convertible arbitrage fund, Amaranth was a recent entrant into volatile energy trading. In 2005, Brian Hunter, a 32-year old Canadian in charge of Amaranth's energy trading, used derivatives to bet successfully that natural gas prices would rise following Hurricane Katrina. Hunter placed a similar but larger bet in 2006. Another trader sent Hunter the following message: "Brian, what the hell is going on out there, rumor is you are getting even more rich!!! According to the market you are brilliant!!!!!! Can do no wrong ever!"
Amaranth bought natural gas for delivery in March 2007, while selling it for delivery in April 2007. Historically, natural gas prices increase during winter, and fall after March as demand for heating decreases. In early September 2006, natural gas prices fell as supply exceeded demand. Hunter bet that a hurricane or a cold winter would push natural gas prices upward. An uneventful hurricane season meant that the difference in natural gas prices for delivery in March and April 2007 (the spread) fell. Amaranth's position, which profited from widening spreads, showed losses as the March/April
spread narrowed from 2.05 points on September 1 to 0.75 points on September 18.
...
In the end, Amaranth was forced to transfer its energy positions to JP Morgan and Citadel at a $1.4 billion discount to their mark-to-market value. Amaranth provided the following analysis: "We did not expect that the market would move so aggressively against our positions."Sophisticated fund-of-funds and investors such as Goldman Sachs, Morgan Stanley, Credit Suisse, Bank of New York, Deutsche Bank and Man Group, failed to pick up any problems at Amaranth.
There are thousands of these gamblers placing bets everyday, and the banks are funding them. The Fed, and us, are backstopping the banks.
Things have always been this bad as far as intelligent decision-making goes. The decisions made during the last 6 years or so were enormously important despite never really being part of a political campaign and scarcely being discussed publicly in terms of its real import. Ten years or so of 8%+ unemployment is not likely to be the worst of the outcomes we will see (we've seen 3 years of +9% so far and improvement is not expected soon.)
39. The amount involved is pretty big, $4T for residential, I don't know how much for commercial real estate, and would leave the government as a large-scale property owner with no quick way to roll the loans over. Many banks would fail, and any run on bank deposits would trigger more failures, with the need to be backed by public funds, again committed for the foreseeable future rather than as short-term crisis backing. Underwater mortgages are the central issue, there's a lot of money at stake. The US needs foreign buyers of treasury and agency bonds, not just domestic banks rolling over their assets.
41. I agree that the decisions were made behind closed doors, and think that it's a real shame that OWS did not connect with specific proposals shot down a few months before the protests by McConnell.
6: It wasn't obvious in the way that you, heebie, should have known about it all along, and you're a bad citizen, you. It was obvious in that if you followed the financial news and knew how to read between the lines, it was clear that it was happening. If we had a news media that was in the business of educating citizens, then they could have documented it sooner. The only reason the Bloomberg News story caught on is that through FOIA requests, they were able to come up with a specific number.
The Fed announced all kinds of programs that involved different ways to lend to the banks, like TALF and Maiden Lane, and then all of sudden in the middle of a horrific recession they announced big profits. The most likely explanation is that they were borrowing at close-to-zero interest rates, and using the money to speculate. The incentive for the Fed to do this would be to allow the banks to do this to repair their balance sheets, thus rescuing the banking system.
It's Societe Generale. Maybe. Who cares.
37 + 40
Joe, at a desk at SG, who has 10 billion of the 500 gets a call
"Joe? Amaranth!"
Joe:How much can I get?
"50 million."
Joe:Wired and done. Paperwork being automatically generated. Joe and the other guy just made 10 thousand each.
5 minutes, no knowledge, discretion or judgement. 50 desks, all day, every day, 100 banks, 5000 private traders
'''
It's about liquidity. As long as the money keeps chasing money future earnings cover present losses and nobody has to reconcile the books.
Fucking race track of moving money at 2 million bits per sec that dare not even ever slow down. We are just along for the ride
Why does Yggles and Krugman and Scott Sumner and DeLong all want QE from the Fed and the ECB in Europe? Liquidity. (This was what 2009-09 was about)
Can't slow the carousel down.
(I should paste the Jefferson County story to show you that your town, your school, your sewer system, your pension, and your health care are moving 500 mph on that carousel. We really can't slow it down.)
42: The US doesn't need foreign buyers of treasury and agency bonds. The US has foreign buyers because a) no one else is plausibly as risk free, and b) foreign countries like China buy US gov't bonds to keep their currency weak. If foreign buyers went elsewhere, the value of the dollar would drop, imports would drop, exports would go up, and unemployment would go down.
Halford's plan would work fine, unless we put George W. Bush in charge of setting the details, or something. The banks have in fact lost money and some of them are bankrupt. Instead of recognizing that fact, we're letting them exploit accounting loopholes to not recognize losses. This is exactly the strategy that Japan pursued, and it rendered their banking system completely useless for promoting economic growth.
I fail to see how a program of "write down the principal underwater homeowners owe on their mortgage to match the current market value of their home, so they will no longer be underwater, combined with refinancing at a lower rate" would bankrupt or eliminate the banks.
The banks are likely carrying any first mortgage loans or MBS they hold at something like 97 cents on the dollar, so a writedown of, say, 20% would be a major hit. Second liens are even worse in terms of actual value (frequently zero) to reported value, and the four biggest banks are holding second liens that they value at a level exceeding half their total capital. So yes, it could bankrupt the banks. But of course the losses are there already, unless underwater homeowners can be persuaded to keep making their payments, at least long enough for the banks to recapitalize with the Fed's help.
The incentive for the Fed to do this would be to allow the banks to do this to repair their balance sheets, thus rescuing the banking system.
Of course, when you allow the banks to pay dividends and massive bonuses out of the resulting profits, you're undercutting this strategy somewhat.
Austerity measures and government cutbacks can go suck on a tailpipe.
the Fed and Congress are two different bodies. the Fed is not responsible for our austerity craze. the Fed's actions here did not cost any taxpayer money.
They could have just nationalized and worked out the details later. But not within the present political and governmental system.
Good thing the government cut subsidies for grad student loans as part of the debt ceiling deal. We can't afford that kind of waste.
Soak the rich first and ask questions later.
45.1 Maybe. Or maybe bank runs and 15% interest rates. Just saying that there's a lot of money involved, and not fucking up the transition seems challenging.
I agree that bank bonuses and dividends under current management are terrible, and would love to see a competent and aggressive SEC with expanded powers.
53: Or maybe aliens would invade because they had money deposited in those banks, and they want it back.
The banks actually lost the money. We're letting them pretend they didn't lose the money, when we have a perfectly good alternative solution -- they recognize their losses, and if they're insolvent the FDIC seizes them and pays off depositors. If the bank is too big, then the government can nationalize it.
If foreign buyers went elsewhere, the value of the dollar would drop, imports would drop, exports would go up, and unemployment would go down.
the value of the dollar would drop
This is the world's collateral
exports would go up
Not after the margin calls. Nobody left to buy anything.
the Fed's actions here did not cost any taxpayer money.
This is what I am trying to figure out. Remember during our great age of WPA and Golden Gate Hoover Dam Moon Shot...all the markets and profits sucked.
It is my gut feeling that pulling billions out for infrastructure or health care or pensions will crash the financial system. Not only that, but finance needs us to slash everything we have for the banks to survive.
Economics isn't a morality play, it's a mortality play. It always ends in catastrophe. Or revolution.
54:FDIC seizes them and pays off depositors
The creditors.
Walt, the fucking creditors are Sacramento pension funds, Shanghai hospitals, and museums in Milan.
In the same year, in 2001, the four Nordland municipalities Narvik, Rana, Hemnes and Hattfjelldal borrowed money to invest in complicated bonds issued by Citigroup and sold through Terra Securities. The municipalities also signed a confidentiality clause with Terra, which ensured that no independent third party could evaluate the quality of the investments. It has been questioned if such a clause, under the circumstances, was legal.In Narvik's case, part of the capital came from the municipal sale of 50% of Narvik Energi, the municipal power company, in 2002 to DONG Energy and HelgelandsKraft. The other three municipalities had ownership in HelgelandsKraft (Rana 26.8%, Hemnes 7.0% and Hattfjelldal 2.5%) as well as property tax income from power stations owned by Statkraft. These municipalities were investing future income from these sources.
I fail to see how a program of "write down the principal underwater homeowners owe on their mortgage to match the current market value of their home, so they will no longer be underwater, combined with refinancing at a lower rate" would bankrupt or eliminate the banks
Halford- Once a cramdown has been forced by regulators the credit market will dry up completely. Why would a bank lend money if the regulator can change the rules arbitrarily to benefit the borrower? Not a risk I would be willing to take, not even with your money.
the Fed's actions here did not cost any taxpayer money.
Bullshit. It allowed the bankers to hold on to their unearned slice of the American economy. If they printed up a massive number of dollars and made me the world's first trillionaire, would you say the same thing?
58: And yet, oddly enough, lenders actively compete to make the kind of secured loans that are currently subject to cramdown in bankruptcy, which is to say every kind of secured loan other than residential mortgages.
Halford- Once a cramdown has been forced by regulators the credit market will dry up completely. Why would a bank lend money if the regulator can change the rules arbitrarily to benefit the borrower?
Because they don't make money sitting on money? Because they realize that they brought it on themselves and are better off than they might be? If they expected an annual cramdown, sure.
I love the word "cramdown" so much.
the kind of secured loans that are currently subject to cramdown in bankruptcy
Those are known rules, and are priced into the deal. What do you think credit reporting is all about. If it becomes a free for all, banks will charge huge risk premiums. Also known as a credit freeze. bob is right, it is all about liquidity. If we have to made purchases with gold coins, money might as well be those big rocks in Yap.
Felix Salmon today
The FT is reporting today that the new fiscal rules for the EU "include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs". If this principle really does get enshrined into some new treaty, it will be one of the most fiscally insane derelictions of statesmanship the world has seen -- but it certainly helps explain the short-term rally that we saw today in Italian government debt.
Finance rules. You. All of you. Ain't no democracy, ain't no freedom. Finance rules.
Capital Rules
You want a revolution or not?
63: So once the rules change, the new rules get priced into the deal going forward.
The Felix Salmon is ok, but the comments are even better.
It is possible that they are insisting on full payment of private creditors out of deference to the opacity of many of the GS-style private debt instruments. Partial payment would require an accounting, and thus transparency. And, of course, the terms of some of these transactions might cause even a slight haircut to be equivalent to a total loss, to a highly leveraged total loss.They fear transparency in these private debt transactions more than anything else, even national ruin as you outline in its certainty. Some folks must be really on the hook to folks who are really on the hook in these transactions.
But, you see, we don't know, we can't know. if any of this is true, or who it might be true of. That's the beauty of opacity in these matters.
"gtomkins" which might the Glen Tompkins that is around.
Capital moves, has to move, has to accelerate accumulate until we get destruction of the social relations between capital and labor. This is recession, depression, and then, with luck, revolution.
Three years on, it's still good to be a banksta.
With 100s of trillions on the line, I can't seem, some days, to care about 13 billion in profits or somebody's 100 million dollar bonus.
I do care about Italian women getting their retirement age raised from 60 to 66. I care about that a lot.
Enough. I haven't read enough today.
63: oh bullshit. This is just an extortion attempt disguised as reasoning. First, the actual bankruptcy cramdown proposal was limited to mortgage loans made during the housing bubble, not those going forward. Second, every kind of loan not secured by a principal residence was and is dischargeable in bankruptcy -- including second mortgages and loans on vacation homes -- and I didn't notice people getting having any trouble getting loans on those during the bubble. Third, people mostly go bankrupt in situations they would be foreclosed on anyway, and banks lose more in foreclosure than they would in bankruptcy. Finally, mortgage rates are way more influenced by Federal Reserve policy than they ever could be by a last-resort option like bankruptcy.
I'm really tired of hearing the class interests of bankers retailed as though it was just a tough-minded willingness to recognize "reality".
||
I know I promised...but I'm bad
Brian Downing military expert at the Agonist
A number of states have also pursued a violent clandestine campaign of bombings and assassinations that have killed scores of Iranians, including nuclear scientists. These attacks are almost certainly directed by Israeli, Saudi, and US intelligence services. They may also be acts of war.The American public is blissfully unaware of what is going on and will see a violent Iranian response as unprovoked and calling for decisive action. And any US attack on Iran will be widely judged as measured and just.
So how are you gonna respond when a few thousand Americans get killed? After the grieving.
God save us from Gingrich in time of war?
Obama 2012! WTF!
|>
Emerson is back, b's back, Edgies are back...lay odds hilzoy will show up.
Election year.
They also serve, nay, since the record sucks, they serve best who say:
"Look over there. A stupid evil Republican!"
20
The point is that the government should have been giving everyone lots of free money. ...
Weren't these in fact collaterized loans which have since been repaid?
A loan at below-market rates is free money for a bank.
With interest? Fucking B of A. They cost me great bunches, cut my credit limit, and gave bonuses to the fucks who team the thing into the ground buying the stupidest mortgage lender.
Besides, the real problem is not whether the money was paid out or paid back. The problem was that its purpose was to cover up fraud and mismanagement, rather than hold people accountable.
Is this Felix Salmon post relevant? http://blogs.reuters.com/felix-salmon/2011/12/07/smackdown-of-the-day-bloomberg-vs-the-fed/
74
A loan at below-market rates is free money for a bank
According to Felix Salmon:
The fact of the matter is, as the Fed points out in its letter, that the Fed set the interest rates on the lending at a penalty over normal market rates ...
Also according to Felix Salmon:
The Bloomberg article reads like a highly partisan attempt to paint the Fed in the worst possible light, with misleading assertions and extensive quotes from Fed critics. ...
A 13 billion dollar profit doesn't sound like a penalty. I guess it's possible this was an honest attempt to supply liquidity with a penalty, but it sounds more like an attempt to recapitalize the banks.
Probably too late, but:
"I have been looking into the claim recently made by any number of internet sites (for example, here's one of the many hundreds, if you insist on a link) that the Federal Reserve made $7.77 trillion in secret loans to banks. The claim is outrageously inaccurate, as I explain below..."
http://www.econbrowser.com/archives/2011/12/777_trillion_in.html
I saw via DeLong that dsquared tweeted that this isn't really scandalous. What, in D2's mind--and my less sophisticated one as well, is scandalous is that the same sort of help wasn't offered to the economy as a whole.
Yves doesn't really address the specific points that Salmon makes but talks about the Fed's lack of transparency and the very lucrative favored position the banks had all along and still have, at the expense of the general public. Not a
Dsquared, bless his heart, is apparently a banker and is apparently hurt and surprised that anyone should have ill feeling against bankers.
I'm waiting for the mainstream economists to come up with a smear job on Yves. It hasn't happened yet, perhaps because her position remains strong. But she'll show weakness at some point.
A 13 billion dollar profit doesn't sound like a penalty
The $13bn number is made up. Literally. It's plucked out of thin air (specifically the banks' NIM on their entire balance sheet) As is the $7.7tn number, which is at least based on real numbers, but then makes a whole load of completely untrue assumptions to get to a nice big number. Bloomberg did a very good thing in pursuing the FOIA action and then wrote a terrible, terrible article based on it.
Dsquared, bless his heart, is apparently a banker and is apparently hurt and surprised that anyone should have ill feeling against bankers.
Sure, but I'm much more upset about the completely inadequate stimulus response than I am about the bank stuff. And further, I'm much less upset about these temporary measures by the Fed than I am about the Congressional response to the bank failures.
I think that the Fed is in a really difficult position. I have a friend who works at the Boston Fed, mostly researching the housing crisis. His boss asks him to write memos on what the Fed can do to improve the economy. He really struggles with it. He's always thinking, "Well, the interest rate is already really low, the real one is probably zero. In this situation, the traditional IS/LM model would recommend fiscal stimulus. That's Congress, not us."
I think the key thing about the banks isn't the retrospective apportioning of blame,* but the total absence of change. No restructuring, no regulation, no prevention of the 'too big to fail'. No taxes on high incomes. In fact it's massively worse, with the reaction to the financial crisis looking increasingly like it's going to actively prevent any improvement in this area.
* although I don't share dsquared's view on this.
In other circumstances the Fed has been more activist than it is now. Greenspan, who enabled the crisis, did not do so passively. This doesn't seem to be a time for major players to kick the can to someone else, which is what almost everyone is doing.
In general, all the people who were strutting around making loud noises during the fake prosperity have been hiding in their holes since the collapse they enabled took place. The only ones who seem to be trying any more are the ignorant Republican saboteurs. We seem to be a failed state.
Quite mainstream people have been pointing out for some time that the Fed's charter has two parts, keeping interest rates low and keeping unemployment low, but that they seem to have been ignoring the second item.
Quite mainstream people have been pointing out for some time that the Fed's charter has two parts, keeping interest rates low and keeping unemployment low, but that they seem to have been ignoring the second item.
Without wanting to come off as a Fed apologist,
a) The Fed does not have a mandate to keep interest rates low. It has a mandate to keep prices stable.
b) In addition to the unprecedented lender of last resort stuff discussed in this thread, the Fed has done nigh on $2tn of quantitative easing. Whatever you think about it, you can hardly call that passive.
Sometimes I watch Encino Man over and over again.
[Editor's note. The replaced comment used the epithet 'wasp-zionist', which I kind of think is worth preserving.]
But if keeping unemployment low is part of its mandate, unemployment remains high, and there's more it could do (without risking the sort of inflation that would be worse than the level of unemployment we've got now -- which as I understand it doesn't seem to be a serious risk), and it's not doing it, then whatever it's done in the past it's not doing enough. And my uneducated impression from what I've been reading is that all of those things are true.
We're now in a position where Geithner, Summers, and the Fed seem like good guys. The Republicans in Congress are obviously the big villains, and while his supporters say this gets Obama off the hook, he has committed himself to bipartisan cooperation with the worst Congress in living memory.
I have no positive suggestions. The Fed's excuses are pretty good. Obama's excuses are pretty good. The Senate Democrats' excuses are pretty good (60 vote rule). The wisdom of the Founding Fathers mean that a temporary majority in in House of Congress can bring the country down. That's called checks and balances, and aren't we glad for it?
But of course, Europe is doing the same.
No, Europe is doing completely different stuff but with the same net outcome. That's the scary part.
But if keeping unemployment low is part of its mandate, unemployment remains high, and there's more it could do (without risking the sort of inflation that would be worse than the level of unemployment we've got now -- which as I understand it doesn't seem to be a serious risk), and it's not doing it, then whatever it's done in the past it's not doing enough.
Sure, and I'd agree it probably should be doing more, certainly in terms of its messaging. But, there are limits to what monetary policy can do to boost employment, particularly when the transmission mechanisms aren't working very well. And at the moment they're working terribly. Also, while the employment situation means more QE probably won't affect inflation in the US too much, it's already had a massive impact on food prices, for instance, and many developing countries have argued that the US is effectively exporting its inflation to them.
and many developing countries have argued that the US is effectively exporting its inflation to them.
Spell this out or link to something, if you would? This stuff confuses me.
I'm trying to wrap my head around the idea that Bloomberg News wrote a massively unfair article about the Fed. My uninformed stereotypes have been violated.
No restructuring, no regulation, no prevention of the 'too big to fail'. No taxes on high incomes
Only the last of these is true.
Also; if you think that neo-liberal "technocrat" governments are gutting public spending and taking apart public pension systems regretfully, because they were forced into doing so by the "austerity" forced on them by those awful bankers, it might be worth re-reading all the books they wrote about what they wanted to do over the last twenty years. Elsa Fornero, in particular (the Italian minister seen bursting into tears at the budget press conference) has a long history as an economist of advocating almost exactly the pension "reform" that she was crying about.
97, 99: Well, I'm not an economist, but as I understand it, it works in two main ways. Directly, by increasing commodity prices, and indirectly, by devaluing the dollar, which requires devaluation of exporters' currencies to remain competitive, which in turn leads to inflation in those countries.
by devaluing the dollar, which requires devaluation of exporters' currencies to remain competitive, which in turn leads to inflation in those countries.
this is the Brazilian and Chinese spin. An American economist (like Dean Baker) would put it "not bending over backwards to accomodate their undervalued-currency policies, thus forcing them to accept the domestic monetary consequences if they want to keep running a massive trade surplus".
forcing them to accept the domestic monetary consequences if they want to keep running a massive trade surplus
Greece and the SPIIGS (and the 90s Asian crisis) show what happens when you don't run a massive trade surplus or sovereign wealth fund. Yeah, sure, all the little guys are wicked and Canary Wharf is the moral center of the universe.
You get bought and looted by the locusts. Hi, locust.
But this Last Psychiatrist post is what I wanted to link to. Brilliant, funny, insightful, I love this guy.
But if The Apprentice is indeed a metaphor for this European feudalism, then you should observe that the show's original judges were Donald Trump and his business partners (=American capitalism); Trump's kids were a later addition. The evolution of the show was towards dynasty, not away from it, just as the Patek Philippe ads have moved, after 172 years in the branding business, towards this:PP ad
--towards this, during a time of social and economic upheaval, flattened earths, "student" revolutions in many Middle East countries and all out wars in many others; towards this, during the time the most important person in Europe is a woman; towards this in the pages of higher brow magazines for the "intellectually curious."
Anyone who thinks the profound changes happening in the world now are going to result in greater democracy or equality is not reading The Economist as carefully as he should.
Huh. I read some more about the Bloomberg article, and it is kinda bullshit. The $7.7 trillion number is from a Bloomberg article, but it's being taken out of context. The $17 billion profit could be right, but it's guesswork on Bloomberg's part.
re: 100
Oh no, I get that they are using this as a chance to do all the evil shite they've wanted to do for ages. And that the 'crisis' hasn't placed politicians in a situation where they are genuinely forced to impose austerity measures. A lot of the finance industry is actively cheerleading for Team Evil Shite, though, so I'm not particular inclined to look on them with warm lingering glances.
Perhaps I'm missing something though,* because I haven't seen any serious measures announced to address the 'too big too fail' problem. Or much change in regulation at all. As far as I can tell most of the stuff I'm seeing is in the category of 'preventing the currently too big too fail institutions from actually failing, right now'. Pointers in the direction of actual or proposed legislation/regulation that is going to deal with this problem in the future would be useful.
* which I may well be. I read the broadsheet press, but not any of the financial/business press.
Is it comforting to think that, instead of a failed state, we're just a state which has been taken over by evil neoliberal forces. Not really, and even Geithner and Summers seem upset by the turn things have taken now, so it seems that we really are a failed state.
If you look at William McKinley, the only thing Republicans would change is the tariffs. He was a protectionist, but otherwise perfect. He even had the good sense to sit quietly when the Democrats destroyed the biracial Republican Party in the South (and the Populists) by paramilitary means.
Teddy Roosevelt is the one who screwed things up, not his cousin. Ask George Will about this.
A lot of the finance industry is actively cheerleading for Team Evil Shite, though, so I'm not particular inclined to look on them with warm lingering glances.
tangentially, you might want to look at the tobacco, arms or oil industries to see what happens when an entire industry gives up on any expectation of sensible or informed debate and just accepts that if civil society is going to say that they're all undifferentiated "locusts", they might as well look after themselves. This would just be annoying if it was only clowns like Bob doing it, but lots of people who I'd previously considered my mates also apparently believe the same thing.
107: You're seriously arguing that the tobacco, arms and oil industries went evil because their feelings were hurt from criticism?
Come on, DSQ. I don't think that those three industries became the way they are because people were rude to them. In the case of tobacco, the debate was completely sensible and informed, that was the problem for tobacco because they were selling poison. Arms and oil (and mining) have always been dominated by murderous international adventurers.
So basically you see finance going that way, after having been nice for so long?
From time spent working with tobacco people, I don't think that's psychologically right at all. They feel put upon and hard-done-by because there's literally nothing they can do that won't be interpreted as evil, but that hasn't led to an open embrace of 'fine, we'll just be evil then.' They're as evil as any other business people, and more harmful because the product they're selling is poison, but they're not more aggressively evil than any other set of clients I ever worked with.
Perhaps I'm missing something though,* because I haven't seen any serious measures announced to address the 'too big too fail' problem. Or much change in regulation at all.
There have been plenty of measures announced (and some implemented). It's questionable whether they'll actually result in the likes of RBS or Citi being allowed to fail. Europe is supposed to be working toward a pan-European insolvency regime for banks, but I'll believe it when I see.
Dodd-Frank includes a number of revisions to how bank insolvency works which are supposed to make it more practical to resolve a failed systemic bank (or other financial institution) without having to bail it out, and basically bringing them all under the FDIC's resolution auspices.
In Europe, there have been proposals to "bail in" banks before any state intervention by wiping out subordinated debt holders and automatically haircutting senior bondholders. These are at the preliminary stages though.
Both the US and the UK are implementing "living wills" for systemically important banks, under which they must draw up their own resolution plans and detail all the things that are needed to keep the systemic parts ticking over in an insolvency. In the UK at least, if the regulator doesn't think the plan is workable, they can in theory order changes to the structure of the bank, though I suspect you're not going to see anything too drastic on that front. I'm not sure if the Fed/FDIC has that power under Dodd Frank.
For regulation in general, there has actually been fairly profound change, though a lot of it is quite technical and is being implemented over a long time period. For all the derision it received from some quarters, Basel III really does represent a massive strengthening of the capitalisation of banks (at least in Europe), and arguably more importantly it contains the first serious effort to regulate liquidity. It's going to have a huge impact on the funding structure of banks and should make them much less susceptible to wholesale runs.
I don't think that those three industries became the way they are because people were rude to them.
John, you're an old dude. Surely you remember or at least were told of the days of yore when railroads and mining companies were the careful stewards of society and the land, pushing for the betterment of all.
I do hate the inclusion of tobacco in these comparisons though. It's a totally voluntary personal vice and anyone who took it up not knowing it was bad for them is long dead.
Tobacco's weird. You're mostly right about that, and I think that's enough for legal shelter. On the other hand, there's something wrong with selling people poison even if they know what they're doing. And it's wildly addictive poison. What's going on -- tighter and tighter regulation (can't smoke here, can't smoke there, taxes keep going up) until it becomes impractical to be a heavy smoker, is, I think, the right way to go.
You're seriously arguing that the tobacco, arms and oil industries went evil because their feelings were hurt from criticism
Nope, if I was arguing that I'd have said so.
Come on, DSQ. I don't think that those three industries became the way they are because people were rude to them
Nope, if I was arguing that I'd have said so. What I actually said was:
an entire industry gives up on any expectation of sensible or informed debate and just accepts that if civil society is going to say that they're all undifferentiated "locusts", they might as well look after themselves
The fact that it's also rude and unpleasant to treat a whole class of people as "locusts" (and frankly I think I earned somewhat more goodwill in terms of being pleasant and helpful to a lot of the people in question personally) is by the by. The issue here is that if you're going to make a virtue out of not taking someone else's position seriously, then they are going to ignore you.
And so, as LB says, they don't consciously "embrace evil", they just develop the habit of ignoring outside criticism because it is usually technically flawed and usually offered in pretty comprehensive bad faith. And once a group of people get used to ignoring all outside criticism, they tend to drift in a direction of completely de-coupling from ordinary moral standards, and totally unacceptable things become commonplace.
To take the canonical example from the Philip Morris archives, the tobacco industry sponsored Steven Milloy and his "sound science" epigones to promote the DDT smear on Rachel Carson. They didn't do this consciously to be evil, but because they'd lost all perspective on what was an honest or ethical way to argue.
there's something wrong with selling people poison even if they know what they're doing. And it's wildly addictive poison
Careful, you're going to undercut the case for selling heroin at 7-11.
or also the nuclear industry - a large part of the reason why the nukemen tell such extravagant lies has to do with the behaviour of the anti-nuke lobby.
And once a group of people get used to ignoring all outside criticism, they tend to drift in a direction of completely de-coupling from ordinary moral standards
I think I might be more open to your argument if I wasn't having such a hell of a time thinking of modern or historical examples where industries generally didn't ignore reasonable criticism and ordinary moral standards.
"I didn't want to be bad; you drove me to be bad by telling me to be good!"
It's hard to cut population without outside help. Yeah, Finance guys!
the tobacco industry sponsored Steven Milloy and his "sound science" epigones to promote the DDT smear on Rachel Carson. They didn't do this consciously to be evil, but because they'd lost all perspective on what was an honest or ethical way to argue.
I'm not sure on the timing about this -- that seems to me to be early enough that there wasn't yet real consensus that 'tobacco companies are evil'. Their real bad scientific sins are from when they were still kind of respectable, and had some hope of screwing with the scientific consensus on tobacco. For the last several decades, that's stopped, because there wasn't any real point any more. Which means I don't think it fits into a narrative of 'demonize them too much and they'll stop listening.'
Given the public reaction by bankers to Obama, and his occasional departures from unqualified praise, it's hard to imagine criticism of them that wouldn't have them screaming "Class war!".
How many times can I use 'real' as a meaningless intensifier, class? Many, many times.
Yeah, Finance guys!
Perfect example of the genre. The (very many) problems of the Baltic States aren't caused by "Finance Guys". They were the result of a series of austerity and internal/devaluation policies carried out partly by the domestic political class, and partly on the advice of various neoliberal chancers. The people responsible for this disaster, if you bumped in to them at a party, would describe themselves as "NGO types", "non-profit thinktank wonks" or even "development workers".
I'm not sure on the timing about this
I think I'm right. Milloy's "sound principles in epidemiology" were published in 1992 and the DDT smear obviously had no relevance until the debate leading up to the 2001 Stockholm Convention. The purpose of the whole journey into scientific sin was to screw with the emerging consensus on passive smoking.
The mining and oil companies behaved in a ruthless and predatory way from the beginning. No response to them could have made them more predatory. Before about 1900 predatory economic behavior was considered perfectly fine in the US, but when necessary the mining companies went beyond that in the direction of murder and fraud.
I can understand this as dsquared's warning about how we can expect things to develop. I've more or less expected something like that development all along, though it seems to me that it's been in the works for decades, including the 80s and 90s when many worshiped the job producers in finance.
The power of finance and rewards to people in finance was always justified by the way they made the economy grow, even with the costs that growth inflicted. But suddenly a big part of that growth disappeared, in large part because of a failure of finance, and possible malfeasance. Yet their rewards are their same, and the power of finance over the diminished economy is, if anything, more secure.
I've always been a populist, and this seems to be an appropriate time for that. I've always liked and admired dsquared, and don't know what to make of this. I never had any idea that respect for finance was one of his requirements of friends.
Oh, I was way off on the timing, then. Still, they were doing that kind of evil much more, and harder, back when they weren't pariahs in the 50's-70's.
re: 107
Well, I did say 'a lot'. Not all.
Much of the finance industry simply _has_ spent a lot of time and effort campaigning for light-touch regulation, or even deregulation, and actively campaigning for a lot of the shitty policies our politicians are rushing headlong to embrace. It's hardly a one-way street, and that doesn't let politicians off the hook. You've written before about the ways in which politicians and regulators made active political choices to let things go a certain way, inflate certain bubbles, and so on. That's surely true, but it's not as if there weren't people on the other side of the picture involved in a dialogue with those politicians, and lobbying for things that they thought would make them money.
The tobacco industry behaved as any industry selling a harmful but popular product would do. Without the opposition they would just have continued to sell their product. the opposition has succeeded, by various means, in reducing tobacco use (i.e., the proportion of the population using tobacco)by 42% or more, which is all to the good.
Back when LB was being a shill for tobacco, I still thought of her as a shill but was sorry that she was doing the job she was doing, and she never demanded that I change my opinion of tobacco shills generally.
124:Doing the same thing you did above with the Italian lady, blaming the people who have to somehow find an appropriate austerity policy in order to satisfy the bond markets, avoid the bank runs, and pay down the debt
What, the Baltic States went to austerity on a freaking whim?
Read 124.1 carefully. It's hilarious.
Thanks for 111, btw. That's interesting. Ta.
This is not addressing the substantive facts of anything at all. But there's a real distinction between 'the finance industry' and 'bankers', in that the first is a set of organizations, with emergent behavior from those organizations, controlled by a small fraction of the people who work therein, while the second is a list of people. The finance industry can be doing all sorts of terribly harmful stuff as a whole, while most bankers individually are doing useful, reasonable things (or things that are harmful in context, but not harmful in a way that's under the control of the individual banker). I don't think this gets us anywhere, but I thought I'd throw it out there.
115: dsquared, seriously, if the finance industry were to "develop the habit of ignoring outside criticism" and "drift in a direction of completely de-coupling from ordinary moral standards", how would we tell?
Would UK banks sink to the level where they start selling dodgy investment products to 85-year-olds in care homes?
Or would the rating agencies start giving high ratings to products they secretly thought were crap, simply because they could make more money doing so?
Would the US mortgage industry start making a habit of lying about mortgage documentation?
Would Citigroup and Riggs Bank begin laundering drug money?
I mean, help me out here.
There are a few kas in Mandarin, mostly used in translitertions (kafei = coffee) or as onomatapoeia, but one is a real word used as a verb. It's very rare even in Chinese, though. My Chinese software blinked out but later I'll try to show it.
Here's Michael Hudson on Latvia from January
Here's Hudson's Latest December 6
"Europe's Transition From Social Democracy to Oligarchy"
The easiest way to understand Europe's financial crisis is to look at the solutions being proposed to resolve it. They are a banker's dream, a grab bag of giveaways that few voters would be likely to approve in a democratic referendum. Bank strategists learned not to risk submitting their plans to democratic vote after Icelanders twice refused in 2010-11 to approve their government's capitulation to pay Britain and the Netherlands for losses run up by badly regulated Icelandic banks operating abroad.
132 is right, of course. With the exception of a few vile arseholes, it doesn't make much sense to attack individual people working in the finance industry as some special class of villain.*
You can still think that the industry as a whole, in concert with politicians,** is part of a system that's fucked up.
* Years ago I worked for a bank, myself, albeit in a shitty job. And I've worked for the oil, chemical, and power generation industries, too, so am hardly in a position to start claiming the moral high-ground in terms of who I've worked for.
** the ones I'd really like to see on the planned Solar-Wind-Gibbets, lining the length of Watling Street.
If we take Daniel's analysis (as I understand it) as broadly correct: that primary responsibility for the present crisis lay with i. a political class which was selling an unviable economic package to their electorate on the assumption that they could kick the can down the road forever; and ii. an uniformed but greedy electorate which didn't want to look too closely at the structures underpinning their party time, then the question that puzzles me is why those financial institutions which were most at risk in this situation went along with it.
Assuming that senior bankers are no more nor less inclined to be corrupt and sociopathic than anybody else, the guys in the most exposed positions must have felt their arses getting cold long before the whole thing fell apart. Why weren't at least some of them banging on Treasury doors, writing impassioned articles in the FT and screaming into television cameras that there were danger signals everywhere? Had they been assured that governments had a secret supply of magic dust to prevent it all coming apart? Were such assurances convincing? I'm not in the blame game here, I just want to understand why the financial sector seems to have acted like a turkey voting for Christmas for so long.
Yes, I know a lot of people were making a lot of money. But still.
Sorry! Scrabble thread.
Aren't people in finance also neoliberals? Summers and Geithner and Sachs all played their role in the ex-USSR. I guess Sachs isn't finance, not sure.
132,136:I am afraid that, no, it's wrong.
George Bailey IaWL would not have sold his neighbour's mortgages to sharks and piranhas.
Every banker jumped on the securitization gravy train, and I don't know how they could have rationalized it.
Aren't people in finance also neoliberals? Summers and Geithner and Sachs all played their role in the ex-USSR.
Career academic who has (I think) once had a consultancy sinecure at a hedge fund, career civil servant who has never worked in a bank, career academic who has never worked in a bank. Keep this up and we may find your definition of "finance guys" includes Bruce Springsteen.
129 is a great example of why I'm glad to have John back.
We all know the problem is not finance guys, the problem is people in the government who do everything finance guys want. The question is, why do these government people act this way? Insanity? Cowardice? Either way, the real people to point your finger at are the technocratic humanitarians at NGOs like the IMF.
Around 1985-2005 a utopian futurological dream of unlimited growth and easy money was held by almost everyone, the two parties, the major media, a lot of the up and coming bright boy authors, a fair proportion of the electorate, much of the economics profession, and, as far as I understand, most people in finance. One of the major tenets was to let business and finance run free. I never believed it and always hated it, but I never had the level of understanding to criticize it effectively.
I suppose you could say that, in the aggregate, on the average, with the boom and bust we've seen we're no worse off than we would have been with mediocre growth during the same period. But the boom and bust affected different people differently, and millions of people were virtually destroyed. My sister lost about 2/3 of her retirement saving, which was already small.
I can't deal with this without blaming. The media, the two parties, most economists, definitely. But why not finance too? They were players during that period, and they seemed very proud of themselves and very contemptuous of everyone else.
137: Because for the most part, "senior bankers" didn't see it coming. Not the housing crash and certainly not the financial market implosion from August 2007 until the end of 2008. Partly because of ignorance - I doubt more than a handful of bank CEOs could have given you an accurate description of a CDO in 2006, let alone a CPDO. Partly because of the money - senior bankers do not like having to explain to shareholders why other banks are making so much money doing something they aren't, and they're certainly not going to talk down their own book. And partly because it (the extent of the crisis) was totally unexpected. Even though various people had pointed out various weaknesses in the underlying economy and in various financial markets, the way the crisis spread was pretty mindblowing. What started out as a US housing crash ended up cratering the prices of pretty much every financial asset.
Had they been assured that governments had a secret supply of magic dust to prevent it all coming apart? Were such assurances convincing?
Yes, and yes for the most part. It was explicitly the policy of the Fed (not so much the Bank of England) that they would step in to minimise the consequences of a bursting of an asset bubble. It was their justification for not having an anti-bubble policy. And, of course, the bubble was the policy response to the dot com and telecom bust; if we hadn't had a housing bubble, the "lost decade" would have been 2001-2011
Career academic who has (I think) once had a consultancy sinecure at a hedge fund, career civil servant who has never worked in a bank, career academic who has never worked in a bank
True, Geithner has never worked in a bank unless you count the bit where he was PRESIDENT OF THE FEDERAL RESERVE BANK OF NEW YORK.
137: Assuming that senior bankers are no more nor less inclined to be corrupt and sociopathic than anybody else...
You don't get to the top of a major financial institution unless you really, really, want power and money. Sociopaths are over represented in the upper echelons of power because they like power and are willing to do things other people are not. Martha Stout talks about this in her book The Sociopath Next Door (well worth a read), and I recall her mentioning a study of CEOs showing over-representation of sociopaths among business leaders relative to the general population, but I'm having trouble tracking the study down. Digging around, I see that Robert Hare, the leading authority on sociopaths, estimates ~4% of CEOs meet the criterion vs ~1-3% in the general population. Not enough to sway an entire industry, I don't think. My biases against the kind of climber who makes it to the top of a place like Goldman-Sachs lead me to believe that the percentage estimated leaves out a very large number of borderline cases.
Dsquared, finance isn't exactly an open profession. We scarcely know the names of the people involved ("God's work" Blankfein is the one I can think of, and a few people from Enron). We only know who does what when there's a disaster and an investigation, and even then not very often. If you send me a list of the names of people in finance, I'll curse the right people.
As I understand now, you believe that finance collectively and individuals in finance played no important role in the big disaster, and are not on the list of people to be blamed (if anyone is), and that it's OK that most of them, not all, came out as well off and as powerful as ever, while tens of millions had their lives ruined. Elsewhere some time ago you seem to have opted for the "shit happens, no one's to blame" explanation. I can barely understand this.
Was Greenspan in finance? Someone once denied that he was even an economist because he's ABD. (The fuckedup world is his PhD dissertation).
This might be the study Stout was talking about.
if the finance industry were to "develop the habit of ignoring outside criticism" and "drift in a direction of completely de-coupling from ordinary moral standards", how would we tell?
Basically, much more activity would/will drift into the unregulated sector (hedge funds at the top end, payday lenders at the bottom), the tax base of the industry would/will be hollowed out to tax havens (much more than it already is) and the mis-selling scandals will go back to 1920s levels.
Doing the same thing you did above with the Italian lady
"The Italian lady", you clown, is one of Europe's foremost neoliberal economists and specifically, the founder of a thinktank dedicated to pension reform in Europe. As well as that, she was actually recruited to the Italian government from her post as Deputy Chairman of the Management Committee of Intesa SanPaolo - ie, she is practically the only person named on this thread who is a banker!
And seriously, dsquared's argument in 140 is pretty unpalatable. "How can you say they're finance guys? They've never worked in a bank!" Being chief economist of the World Bank, deputy treasury secretary, and managing director of a hedge fund doesn't actually mean you've got any connection to finance, because you've never worked in a bank. And Orville Wright wasn't an aviation guy because he never bought an airline ticket.
129 should be: Back when LB was being a shill for tobacco, I still thought of her as a shill friend but was sorry that she was doing the job she was doing....
144: What we luddites suspect is that the failure to understand was a corrupt, self-interested, deliberate blindness by people who held everyone else's lives in their hands and were having a lot of fun throwing their weight around and feathering their nests better than we can even imagine.
Basically, much more activity would/will drift into the unregulated sector (hedge funds at the top end, payday lenders at the bottom), the tax base of the industry would/will be hollowed out to tax havens (much more than it already is)
And this hasn't happened already because the banks feel a moral onus to stick around in these highly regulated, highly taxed areas?
and the mis-selling scandals will go back to 1920s levels.
Oh, well, we wouldn't want that, it might lead to a Great Depression.
154: I wouldn't particularly disagree with that.
Being chief economist of the World Bank, deputy treasury secretary, and managing director of a hedge fund doesn't actually mean you've got any connection to finance
The World Bank and the US Treasury are not profit-making corporations or even private sector entities, and Summers' role at DE Shaw was legendarily nugatory. If you're going to say that simply being a neoliberal means that you're a "banker", then this is kind of my point.
I'm now actually going to convert theory into praxis; I'm very interested in criticism of the industry I work in and (unusually) I was actually making such criticism before it became obvious. But I'm not interested in basically uninformed criticism (still less if it's clearly in bad faith), and nor am I really interested in providing remedial classes while being insulted for the privilege. I definitely had the right idea three months ago.
the guys in the most exposed positions must have felt their arses getting cold long before the whole thing fell apart. Why weren't at least some of them banging on Treasury doors, writing impassioned articles in the FT and screaming into television cameras that there were danger signals everywhere?
My brother and sister-in-law were basically doing this, with the rest of the family. That is why I don't believe that everyone was blind-sided.
I'm very interested in criticism of the industry I work in and (unusually) I was actually making such criticism before it became obvious. But I'm not interested in basically uninformed criticism (still less if it's clearly in bad faith), and nor am I really interested in providing remedial classes while being insulted for the privilege. I definitely had the right idea three months ago.
Well then, stick with the Felix Salmon blog instead of paying attention to what people who are merely in the 99th rather than 99.99th percentile of political/economic awareness are talking about.
And this hasn't happened already because the banks feel a moral onus to stick around in these highly regulated, highly taxed areas?
Finally, before leaving, yes. HSBC has considered moving its headquarters to Hong Kong several times in the last ten years, but has always concluded that it has enough of a commonality of interest with the rest of society in the UK that its long term interests are the same as theirs. In general, lots of activities that would be more profitable to carry out in an unregulated entity are actually carried out in the regulated sector because there is a stigma attached to being unregulated - people don't like to do business with unregulated firms or entities in tax havens as they are seen as probably unethical or less trustworthy. In general, the UK has much better tax compliance, particularly at the top end and particularly in the domestic non-expat financial industry, than most other countries do. All of these things are basically "thick" social institutions.
The World Bank and the US Treasury are not profit-making corporations or even private sector entities
Doesn't matter. The claim was whether they are "finance guys" which you decided to reinterpret as "have ever worked in a bank" and are now reinterpreting again as "have held a full-time job at a profit-making private sector bank".
Just take a minute to look at how ludicrously reductive this argument has got. Michael Cassano wouldn't count as a finance guy simply by virtue of having worked at AIGFP. Presumably John Paulson and Warren bloody Buffet are not "finance guys" either. This is bad faith argument.
In general, lots of activities that would be more profitable to carry out in an unregulated entity are actually carried out in the regulated sector because there is a stigma attached to being unregulated - people don't like to do business with unregulated firms or entities in tax havens as they are seen as probably unethical or less trustworthy.
It would be more profitable to be unregulated, in other words, were it not for the fact that people wouldn't do business with you... I don't think this argument is loadbearing.
I'm not willing to be insulted for making basically ill informed criticisms of a secretive, highly technical, enormously powerful industry which has recently done a lot of harm and has never shown any signs of concern for the consequences to others of what it does. My criticisms of the CIA or the Pentagon would not be well-informed either. And while I wouldn't blame someone I knew for playing a role in that industry, I'd be hard put if they demanded that I absolve the entire industry (about which I am ill informed) as a condition of friendship.
And we may only have a difference in timing. You are predicting that finance will go the way of the oil, tobacco, mining, and arms industries, whereas we suspect that they went that way awhile ago.
The subtext to d's threats of bankers and financiers becoming suddenly amoral (watch out now, proles) is of course, that he thinks he/they are always gonna win.
Is he right?
I have a vivid memory: when I was in college, probably around 1997, I decided I needed to understand what my brother did for a living.
I got a long answer of the flavor:
"Well, one person has a mortgage. But a bank has a lot of mortgages. So maybe they want to sell them. I help them do that. And then, you can take mortgages and decided if they're a good bet or a bad bet, and then do this! I try to match clients to products. You make products by taking a bunch of batches, and then rearranging them to get differently sorted batches!"
In the hopes of rescuing the conversation, I wouldn't be surprised if there were a good faith, meaningful-on-some-level, definition of 'bankers'/'finance guys' that dsquared is using, that's not obvious to the rest of us. Which doesn't make the rest of us wrong, but there might be a conversation to have if that got pinned down.
Happy to confirm that Cassano, Paulson and Buffet are all "finance guys". Hedge funds, insurance companies and nonbank broker-dealers and mortgage lenders are all in the SAIC classification "Financial Services".
Development banks, finance ministries and central banks are all in the SAIC classification "Government". For fairly obvious reasons. I've actually been a central banker (working for the Bank of England) and a banker (working for a bank). They're very different.
"Bad faith argument"? Ohhhh ... no, this time I will leave. But that was a really shitty thing to say.
I read 145 as dsquared saying they knew there was a bubble, and they knew they would be rescued when it burst. Does anyone else remember him saying here, in the runup to the crisis, that they had a good handle on risk management so they weren't worried about a total collapse? I attributed this to overconfidence in their mathematical models, but now?
OT: Belgium has a new government. Please take whatever steps you usually take in the event of a new Belgium government being formed.
Frites all round! Moules likewise.
One of the reasons I picked Satyajit Das
is that I hear he concludes in Extreme Money that yes, the bankers are gonna rule. Nothing we can do. Capital rules. Until it disappears.
I only hope that liberals and reformers learn this in the next few years.
I wonder if d knows Das.
HSBC has considered moving its headquarters to Hong Kong several times in the last ten years, but has always concluded that it has enough of a commonality of interest with the rest of society in the UK that its long term interests are the same as theirs
Or to put it in less polite terms, they have so far been successful in using the threat of moving their headquarters to lever the government into treating them favourably. (See the submission to Parliament from Douglas Flint here.)
I'll have to formally withdraw my offer to become Enlightened Tyrant of the Flems, Walloons, and Associated Peoples.
Once you've embraced fatalistic pessimism, you can switch your reasons for pessimism freely easily. I have my set, Bob has his set and it's a fine one, D^2 just gave us another really wonderful set. He's not a pessimistic fatalist because he and his are presumably on the life raft, but at least some of mine aren't so his reasons work that way for me.
As I remember Belgium didn't have a government for a considerable period and no one noticed. There's a comedy page called "Belgium does not exist" which isn't that far off.
165: I'm very sorry to learn that your brother is going to be one of the first with his back against the wall when the revolution comes. Maybe if he shows remorse he can bargain his way down to a re-education camp.
Development banks, finance ministries and central banks are all in the SAIC classification "Government". For fairly obvious reasons. I've actually been a central banker (working for the Bank of England) and a banker (working for a bank). They're very different.
This is not a widely held opinion. The ease with which people move from regulator to bank, or from bank to finance ministry, suggests that the general view is that there is actually a lot of commonality between being a public sector finance type and being an investment banker. You don't get people in the financial industry saying "This man is completely unqualified to run the New York Fed! He hasn't got any relevant experience! He's spent his entire career working for Goldman Sachs!"
(You get other people saying it's a bad idea, sure, but for different reasons.)
Maybe if he shows remorse he can bargain his way down to a re-education camp.
He could start by showing remorse for missing Hokey Pokey's birthday, and then work his way up to wrecking the economy.
179: It is possible that wrecking the economy was just practice for messing with toddlers' birthdays.
I really don't think the way the arguments are usually put are very helpful. What we're seeing now and have seen over the last few years is capitalism (the system) behaving systemically as we know it does unless powerful political countermeasures are taken. That is, it lurches from crisis to crisis, and the benevolent intentions of individual capitalists, let alone their employees, are pretty much irrelevant to the outcome.
Between 1945 and 1989 the strong political countermeasures were largely in place, at least in the first world, because i. the political establishment didn't want Communism to look like an attractive alternative and ii. a significant part of the electorate could remember the 1930s. What has happened subsequently is that a generation of politicians has come to power who don't understand that capitalism left to itself is intrinsically broken - always was, always will be. Blaming the capitalists for this is at best inadequate and at worst dangerously misleading.
We are repeating the past because we've forgotten it. Daniel is perfectly right to react against people shooting the messenger. The question remains, what now: do we patch it up again, per Krugman et al, or try something different? And if so, what?
If you frame everything just so and ask only certain questions it's possible to make Dsquared look right, but he's staked out a very strong position and he's done so very aggressively. It's pretty close to the Society is to Blame explanation, or the centipede's "It's my nature" explanation to the frog, or the "someone else would have done it anyway" excuse. It's very close to saying that nothing was done wrong, which I can't believe.
I'll give Dsquared the honor of assuming he's putting us on, but I feel like my professional life has given me insight into what corporate people do at their most "evil.". There's huge variance within any given industry or company, but IME finance types are way way more evil than even famously evil record industry types. And both are better than the medical device industry.
I know a guy who's a small businessman and an out-and-out sociopath. His ex-wife, has a psychology degree in counseling and went down the checklist point by point based on her experience with him. He was a perfect fit.
Like a certain proportion of small businessmen, when he was just getting started he turned to crime when he got into a sticky place.
I can't see any reason why this wouldn't be true all the way up the ladder. He's worth a few million as it is, by my guess, and he would have risen much higher with family support and a decent education. He was barely literate when he started college.
Certain kinds of bad things are inevitable under capitalism, and certain individuals volunteer to do the bad things. You don't have to be the final or efficient cause of something to be culpable.
The question remains, what now: do we patch it up again, per Krugman et al, or try something different? And if so, what?
1) Let you know when the fires die down
2) Minsky Keynesianism, social democracy, gimme those old 50s and 60s once again, oh yeah. The biggest challenge to Marxism by far, so big that if the electric companies and hospitals get re-nationalized I will move to feminism or something.
3) If we can't go back, I am the wrong person to ask. I am keeping half an eye on the anti-capitalist localist whatever movements and window-shopping some books.
Places to watch:Barcelona? Lebanon? I don't know, the newly failed states
The Fukushima disaster has shaken the foundations of our system as it has proven all of its fundamental assumptions false. Fukushima turned Japanese citizens from believers into skeptics of the government.Deep disappointment in the government has transformed people from apathetic bystanders to proactive citizens, creating innovative financial schemes without relying on the government and committing themselves to energy conservation and reduced dependence on nuclear energy by shifting their priorities and preferences.
In this thread, I've learned that I've spent the last... six-months? year?.. under the apparently mistaken impression that "ajay" was dsquared's new pseud. I'm not sure how or why I got that impression. And now I'm also not sure who ajay is.
I'm now actually going to convert theory into praxis; I'm very interested in criticism of the industry I work in and (unusually) I was actually making such criticism before it became obvious. But I'm not interested in basically uninformed criticism (still less if it's clearly in bad faith), and nor am I really interested in providing remedial classes while being insulted for the privilege. I definitely had the right idea three months ago.
This is fucking rich, coming from the man who was extraordinarily nasty to me as a sidelight to critiquing my positions on California water policy.
Also, it is wonderful having you back, Emerson.
I'm opposed to banks and giving water to Californians.
A solid position, Moby. Who knows how those peasants would trash the economy or the environment if they had banks or water.
If the water goes to fish, I can eat the fish.
You should practice for that glorious day by eating Asian carp and lionfish in the meantime.
Looking at wikipedia seems to suggest that koi are Asian carp, so I may not even need to go to the store.
"The practice of keeping koi often revolves around "finishing" a koi at the right time."
The above passage is as good of an example of why I don't get Japan as any. I think I could understand Korea if I applied myself, but that's about it.
Someone could probably catch enough Asian carp in a couple of days to eat fish every day for a year. They are huge , and there are a lot of them. And you would be doing the environment a favor.
Not many people are sure who ajay is. He's an upper middle class Brit, believed to live in London, who guards his pseudonymity jealously, but often talks a lot of sense. On this occasion, however, I think D^2 has the advantage of him. (Note that I suspect that I think D^2 is right for different reasons to his own.)
I just pulled the plug on my Citibank account. Guess I showed them.
Were you not wearing pants when you closed it?
Seems like if you're anti-tobacco, the way the tobacco industry has been treated in the last 30 years has been a big success.
Finance is interesting because it really was pretty bad (speaking in broad terms here, not all individuals) from the late 19th century up to the 1930s. And then no so bad for quite a while.
But it's not like the reforms of the 1930s came out of grand cooperation between the banking establishment and political reformers, but I think it is true that behind all of the political and popular demonization, you did have legislators, bureaucrats, and bankers working up the reform bills. Part of that was because the conditions within the banking industry were a problem for a lot of bankers, and those internal reformers had been pushing for similar types of reform in things like accounting, financial reporting, etc. - but in the hopes that this could keep the government out of the extensive regulation business.
On this occasion, however, I think D^2 has the advantage of him. (Note that I suspect that I think D^2 is right for different reasons to his own.)
Is there a point actually being argued? I mean, the argument has been 'bankers are taking too much heat' which comes down to 'who, exactly, are bankers' and 'how much is too much'. Both of which are fairly flexible questions, not amenable to precise determination.
Ok, so 200 doesn't make a whole lot of sense. Anyway, what I find frustrating about this discussion is that it seems clear that Bloomberg didn't write a good story, that people in the know can see this easily, that people like Felix Salmon can write persuasively about this as media criticism, and that no one with the ability to - who claims to have the ability to - take the same source base Bloomberg was working from and write a better story on the same topic is actually interested in writing the better story. But they want very much to know that it exists and if you can't put it together yourself, you have no standing to talk to them.
"for you to know that it exists..."
201: It seems like dsquared is trying to draw a distinction between bankers and the global governing elite. (I am confident that dsquared will correct me if I am wrong.)
There is a lot of overlap at the top, which can be confusing to outsiders.
There are lots of positions at the most prestigious for-profit banks (and consultancies and central banks) for people who are part of the elite. Summers got consulting work at Shaw, not because of expertise in finance (he's really an academic/political figure), but because he's part of the governing elite and they figured it was in their interest to find a way to pay him without it looking like a bribe.
Similarly, some of the most prestigious banks are ways to enter the elite if you make it to the top. John Corzine and Henry Paulson got into government through rising at Goldman Sachs.
But that's not enough to make the sets identical. For one thing, you can get into the "elite" through other means, like becoming an ordinary big-firm CEO or rising to the top of a consulting firm. Or becoming a major academic. Or winning a major political office.
Second, someone sitting at a trading desk or designing HFT algorithms or pitching M&A deals may be making obscene amounts of money by harming the public, but they don't have a lot of power to affect how we're governed, or to craft the incentives that makes their job profitable. And there are a lot of those people, plugging away and boring tasks for perhaps more money than they deserve, leading upper middle class lifestyles.
OTOH there are lots of think-tankers and political types who wield a lot of power, and lead nice lives, but don't make the kind of money that a lot of mid-level high finance people do. This includes plenty of researchers at central banks.
And a lot of the failures in governance we've experienced lately have come from the global elite, not the banks per se.
Now, some of these people are the same people. And many more know and work with each other and feel some sort of class solidarity. And that's a problem. But it's a problem with the elite, not just finance people. And it doesn't have a whole lot to do with the moral character of mid-level rich bankers.
Well, I've had the governing elite on my to-burn list for decades. It's not like I'm only after bankers.
I don't see any inconsistency between (a) bankers are cockfaces who are responsible for screwing up the world and (b) the international political system is run by cockfaces who are responsible for screwing up the world. Both can be true!
Summers got consulting work at Shaw, not because of expertise in finance (he's really an academic/political figure), but because he's part of the governing elite and they figured it was in their interest to find a way to pay him without it looking like a bribe.
I love this as a line of defense.
And
Second, someone sitting at a trading desk or designing HFT algorithms or pitching M&A deals may be making obscene amounts of money by harming the public, but they don't have a lot of power to affect how we're governed, or to craft the incentives that makes their job profitable.
These aren't really the people critics of the current financial system are really criticizing, are they? I mean, I guess they're among the recipients of some of the bonuses that have been criticized, but as you say, they're not the ones making the decisions. I'd agree that they shouldn't be tarred with the same brush as the elite (however you divide up that category).
209: I think we agree.
There's some minor culpability for those who benefit from and are complicit in the harm done by the system, and major culpability for those in a position to make decisions, whether or not they are "bankers" or "finance guys".
I think of financial professionals in a somewhat similar way to how I think about soldiers, where I suspect lots more people here will find it easy to agree with me.
The correct number of soldiers to have is probably not zero. And some soldiers probably produce a net gain. But we have lots more than we need, and we've given them orders that produce net harm. Now, maybe that makes a low-ranking soldier a little immoral. But mainly it makes our decision makers - the generals and politicians who order the soldiers to deliver harm - quite a bit more immoral.
And no, that's not a claim that if you agree with me on one thing, you necessarily agree on the other. There are lots of differences I know I glossed over. Just trying to paint a better picture of how someone can reasonably be put off by the "bankers are locusts" rhetoric without disagreeing that they are part of the problem.
I don't think anyone is suggesting that there literally should be no bankers. Of course there should be bankers. Or that they're all individually evil people. Of course they're not all individually evil people. But that doesn't mean that the banking/finance sector as a whole in its current form isn't a plague of locusts. Of course it is. That's not a value judgment, it's a simple, empirically observable fact (for certain definitions of "plague of locusts"). And, since the banking/finance sector as a whole in its current form is composed of bankers, that makes bankers, generally and en masse, locusts. Again, by definition.
We should have bankers, just not doing an awful lot of what current bankers doing, and not making nearly so much money doing it.
"the banking/finance sector as a whole in its current form is composed of bankers" s/b "the banking/finance sector as a whole in its current form is composed of bankers and other finance professionals".
Garfunkel and Oates are doing what needs to be done and calling bullshit on this Occupy Wall Street thing.
Finance is fun!
Felix">http://blogs.reuters.com/felix-salmon/2011/12/08/corzines-culpability/">Felix Salmon on the word of the day:"rehypothecation." Zero Hedge and many others are commenting on MF Global, Corzine and the impending imminent financial doom for us all when the living will envy the dead.
Ian Welsh ...makes it simple:
Because the Fed cut them off. That is all. Yes, they were doing shady things, but no more shady than many other companies that didn't get cut off. If you are a financial firm, you need the essentially free money the Fed provides. With it, you can make money, without it, you can't. Once the Fed cut them off, everything else was just the thrashing around of a dying firm.I would assume, and lay long odds, that someone at the Fed didn't like Corzine.
Yes, this is how your "economy" works.
The markets, Yggles & Klein, the usual MM suspects are all mad at Draghi for not using the firehouse.
...
What is "liquidity" and why do they want it?
It's AAA bonds, treasuries that the banksters can get for nothing (see the Welsh above) and leverage the holy fucking shit out of.
Why do they need it?
Because the last batch of triple As they leveraged til it bled created a planet of toxic waste that nobody wants to buy or trade. This is a "liquidity crunch" the junkies need another fix and the tolerance is building.
Remember this when the MSM economists ask the central banks to be LOLR.
Oh, and the innocent wonks in the bowels of the CB's?
They give the heroin to the Corzines to step on ten times and sell to grannies and orphanages.
The British CB is ten times worse then the Fed. Read the Salmon (sorry for the messed link). Corzine made sure to open a London office. They all do.
So, maybe not 7.7 trillion.
http://www.econbrowser.com/archives/2011/12/more_on_those_s.html