Fraud Creates the Market

In his latest post about Goldman Sachs, Matt Taibbi points out that the investment bank has developed a record now of recommending that its clients buy various financial products at the same time that Goldman Sachs – coincidentally – is selling those products from out of its own accounts.  Inevitably, Goldman Sachs’s turns out to have been wrong and those financial products tank . . . but Goldman Sachs makes out like a bandit by moving those assets off of its own books before they tank.

Taibbi’s post reminded me of something I’ve been meaning to write about for a while now, something that occurred to me when Goldman Sachs and the rest of the Big Money Boyz showed up a year or so ago to testify before Congress as to why their selling mortgage backed securities that they knew to be “shitty” wasn’t unethical.  To a one, they all pointed out (i) that the people they were dealing with were “sophisticated investors” who “knew what they were doing,” (i) that these were “arm’s length transactions,” and therefore (iii) they had no responsibility to advise their customers that they personally considered these instruments to be “shitty.”

It always seemed to me that this defense rested on the investment banks’ fundamental unwillingness to acknowledge the real role they played as the creators of those mortgage-backed instruments:  the role of the “market gatekeeper.”

Matt Taibbi on Occupy Davis

I swear, I will stop writing about this whole Liberty/Freedom distinction.  For one thing, it is tiresome to hear yourself keep spouting off about the same "revelation."  For another, it isn't much of a revelation.

Still . . . Matt Taibbi has a great piece up over at his blog, and - again - he seems to be dealing with the same kind of thoughts.  As always, please do click over and read Matt's take on the UC-Davis pepper spraying of unarmed, non-violent, peaceful protesters.

Here's a taste:

What happened at UC Davis was the inevitable result of our failure to make sure our government stayed in the business of defending our principles. When we stopped insisting on that relationship with our government, they became something separate from us.

And we are stuck now with this fundamental conflict, whereby most of us are insisting that the law should apply equally to everyone, while the people running this country for years now have been operating according to the completely opposite principle that different people have different rights, and who deserves what protections is a completely subjective matter, determined by those in power, on a case-by-case basis.

Not to belabor the point, but the person who commits fraud to obtain food stamps goes to jail, while the banker who commits fraud for a million-dollar bonus does not. Or if you accept aid in the form of Section-8 housing, the state may insist on its right to conduct warrantless "compliance check" searches of your home at any time – but if you take billions in bailout aid, you do not even have to open your books to the taxpayer who is the de facto owner of your company.

The state wants to retain the power to make these subjective decisions, because being allowed to selectively enforce the law effectively means they have despotic power. And who wants to lose that?

The UC Davis incident crystallized all of this in one horrifying image. Anyone who commits violence against a defenseless person is lost. And the powers that be in this country are lost. They’ve been going down this road for years now, and they no longer stand for anything.  

(emphasis added).

Lord knows I've been a critic of the Occupy movement and its tactics, but maybe I've just been overly focused on the achievement of small-term, small-time, concrete goals.

If The Powers That Be overreact so badly to so little, one just has to think that maybe Occupy is really on to something here.  Maybe it is enough -- right now -- simply to keep pointing out how far America falls in failing to be what it promised us.

OWS Perspectives: Matt Taibbi

Matt Taibbi has a new piece up over at Rolling Stone explaining his own evolving understanding of the Occupy Wall Street Movement titled "How I Learned to Stop Worrying and Love the OWS Protests."  It's quite good, and you should link over to click it out.

This passage, in particular, struck me as fairly on-the-money:

. . . .  I originally was very uncomfortable with the way the protesters were focusing on the NYPD as symbols of the system. After all, I thought, these are just working-class guys from the Bronx and Staten Island who have never seen the inside of a Wall Street investment firm, much less had anything to do with the corruption of our financial system.

But I was wrong. The police in their own way are symbols of the problem. All over the country, thousands of armed cops have been deployed to stand around and surveil and even assault the polite crowds of Occupy protesters. This deployment of law-enforcement resources already dwarfs the amount of money and manpower that the government "committed" to fighting crime and corruption during the financial crisis. One OWS protester steps in the wrong place, and she immediately has police roping her off like wayward cattle. But in the skyscrapers above the protests, anything goes. 

This is a profound statement about who law enforcement works for in this country. What happened on Wall Street over the past decade was an unparalleled crime wave. Yet at most, maybe 1,500 federal agents were policing that beat – and that little group of financial cops barely made any cases at all. Yet when thousands of ordinary people hit the streets with the express purpose of obeying the law and demonstrating their patriotism through peaceful protest, the police response is immediate and massive. There have already been hundreds of arrests, which is hundreds more than we ever saw during the years when Wall Street bankers were stealing billions of dollars from retirees and mutual-fund holders and carpenters unions through the mass sales of fraudulent mortgage-backed securities. 

It's not that the cops outside the protests are doing wrong, per se, by patrolling the parks and sidewalks. It's that they should be somewhere else. They should be heading up into those skyscrapers and going through the file cabinets to figure out who stole what, and from whom. They should be helping people get their money back. Instead, they're out on the street, helping the Blankfeins of the world avoid having to answer to the people they ripped off.

I think that -- on the level of pure symbolism if nothing else -- this gets to the heart of what so many people now feel about the American political/socio-economic system.

Paul Krugman is fond of describing the federal government as "an insurance company with an army."  For a lot of Americans -- and not just those actively protesting -- our "free market capitalist system" increasingly looks like nothing more than a loan company backed by an army of button men.

When such organizations do business in bars and restaurants, we call them "the Mob."  When they do business in boardrooms and the halls of Congress, we call them "Wall Street."

The Over/Under on Further Police Brutality

Charlie Pierce writes about the Occupy Wall Street backlash that’s brewing as a result of the nationwide protests beginning to actively inconvenience – not the banks – but the individual people who run the banks and who bear direct responsibility for our current mess.  Pierce writes: 

It was only a matter of time before the human emotions of guilt and shame began to demonstrate their power.  And guilt and shame do not necessarily manifest themselves in contrition and a resolve to amend oneself.  Sometimes, they manifest themselves in anger and violence, and sometimes, the people who are overcome by the power of guilt and shame have police forces at their disposal.  They lash out, or they subcontract the job.  That seems to be part of what’s happening now.

The future belongs to the country beyond Zuccotti Park and the docks in Oakland.  If the country decides it would rather have order than justice, then what’s coming next could be very dark and very terrible.  If the country decides that, yes, this whole thing has been a nuisance, but a minor nuisance compared to an ongoing recession, near double-digit unemployment, a wave of foreclosures, and the continued corruption of the democratic institutions by the money powers, then somebody outside the park is going to have to stand up and lead the next phase.

I think this is mostly correct.  I have argued before that it is the terror that they may finally be called to account that has the banksters now traveling with bodyguards and L’il Mikey Bloomberg overreacting.  In a way this is a good thing, because it drives sympathy for OWS and keeps media attention on a movement that will suffocate unless the nation is reminded over and over again that nothing forces us to meekly accept what has been done to us in the name of the 1%.

Where I think Pierce goes astray is when he suggests that it is the opinion of “the country beyond Zuccotti Park” that will determine what form the inevitable backlash takes.  This is incorrect, and it is incorrect very much for the reason OWS is necessary in the first place:  The people who decide such things don’t care about the opinions of anyone other than the 1%.

L’il Mikey Bloomberg isn’t judiciously weighing how to respond to an increasingly inconvenient protest movement based on how he thinks it will go over with “the nation” – at least, not “the nation” as you, I and Charlie Pierce conceive it to be.  L’il Mikey is part of the 1%, answers to the 1%, and is concerned only about the 1% -- that is his “nation.”  Anyone having any doubts about this should click over and read Matt Taibbi’s takedown of Mike Bloomberg’s Marie Antoinette Moment, in which he excoriates L’il Mikey for peddling once again the oft-debunked, zombie lie that it was Congress and Fannie and Freddie that cause the housing crisis.  L’il Mikey is going to react in precisely the manner the 1% – out of their own guilt, shame, arrogance and terror – tell him to react.  Badly.

For what it’s worth, I think that would be a political miscalculation on his part.  OWS’s success at drawing attention to itself has always proceeded from its mistreatment by authority figures, whether that manifests as pepper spraying peaceful protesters, firing tear gas canisters at the head of a war veteran, or tossing flash-bang grenades at people attempting to help that veteran after his skull was fractured.  Opening up on these protesters with truncheons and rubber bullets will – I think – only strengthen the nation’s general support for the cause.

But if we’re weighing the likelihood of only two possible scenarios – further police brutality or a diffident ignoring of the protest – I’d say the odds favor the former.

The Stock Market is Bad for America

One of my pet peeves about financial and political reporting is that the stock market is often looked to as an economic indicator.  If the stock market is up, then this is claimed as evidence the economy is doing well.  Indeed, I remember listening just a few years ago to a radio interview with W.’s labor secretary, Mrs. Mitch McConnell Elaine Chao, who said the stock market’s performance is the only economic indicator anyone should ever be concerned with.  And this was the Secretary of Labor, forgawdsake!

Now I’ll admit that there may once have been a reason the stock market could legitimately be thought of as a valid indicator for how well the national economy was doing.  Basically, the idea was that stock prices reflect the market’s estimation of companies’ future profitability.  So if the market believed the economy was doing well or (more accurately) was going to do well in the future, then companies were expected to realize greater future profits.  Greater profit meant the companies would be worth more, and this would be reflected in their stock prices.  So if market investors were bullish on the American economy, then they were bullish on the stock market as well.

But there are two important things to note about this model.  First, the performance of the stock market doesn’t actually predict the nation’s economic future so much as it reflects what investors already think that future looks like.  Second – and more importantly – looking to the stock market to tell you how the United States economy is doing only makes sense if the value of the companies traded in that market does in fact depend on the U.S.’s national economy.

It is becoming increasingly clear that not only is Wall Street not dependent on the nation’s economy, its goals run directly contrary to the nation as a whole.  It has gotten to the point that when I see the Dow Jones has ticked up a notch I immediately think to myself, “I guess we’re all about to get screwed just a little harder.”

GOP: Gang Of (adolescent) Punks

Back in my college days I read a line by P.J. O'Rourke that stuck with me ever since. P.J. was explaining the allure of being a 3rd World freedom fighter and observed (paraphrasing from memory): "It will always be more fun to run around in the mountains with a Kalashnikov and sleep with ideology-addled college girls than it will be to spend your life in a rice paddy staring at the ass-end of a water buffalo." Of course, what is implied but not stated is that "staring at the ass-end of a water buffalo" is what actually keeps people from starving to death.

Generally speaking, it is the sober, plodding work that people do that produces more overall benefit, and does so more reliably and routinely, than does the rousing, romantic, exciting confrontation that we all tend to find so viscerally appealing. This is why - in the Real World - most people end up in jobs that do not provide much in the way of excitement but do pay better than any reasonable alternative: boring, routine work produces the most benefit to society. This is also why they don't make movies that are only about people doing boring, routine work: we may all of us be stuck doing that sort of stuff, but we don't enjoy it much and our dreams are always of things a lot more fun.

One of the marks of being an adult is recognizing a univeral truth: if you really want to accomplish something worthwhile, doing so will involve a great deal of hard, mostly boring work. On the other hand, if you care more about "striking a blow" or "making a statement" for whatever cause you've decided to make your own, then you are still pretty much an adolescent who really just wants to star in a movie.

Sometimes it seems to me that America is becoming more and more a nation of adolescents. Even scarier, there seems to be an increasing likelihood that these adolescents have actually seized control of the country.