By all means read this powerful piece by Michael Lewis and David Einhorn in the NYT yesterday. Excerpt:
The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. "Greed" doesn't cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn't the greed of the few but the misaligned interests of the many.A lot has been said and written, for instance, about the corrupting effects on Wall Street of gigantic bonuses. What happened inside the major Wall Street firms, though, was more deeply unsettling than greedy people lusting for big checks: leaders of public corporations, especially financial corporations, are as good as required to lead for the short term.
Richard Fuld, the former chief executive of Lehman Brothers, E. Stanley O'Neal, the former chief executive of Merrill Lynch, and Charles O. Prince III, Citigroup's chief executive, may have paid themselves humongous sums of money at the end of each year, as a result of the bond market bonanza. But if any one of them had set himself up as a whistleblower -- had stood up and said "this business is irresponsible and we are not going to participate in it" -- he would probably have been fired. Not immediately, perhaps. But a few quarters of earnings that lagged behind those of every other Wall Street firm would invite outrage from subordinates, who would flee for other, less responsible firms, and from shareholders, who would call for his resignation. Eventually he'd be replaced by someone willing to make money from the credit bubble.
OUR financial catastrophe, like Bernard Madoff's pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today's financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that's the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
More:
And here's the most incredible thing of all: 18 months into the most spectacular man-made financial calamity in modern experience, nothing has been done to change that, or any of the other bad incentives that led us here in the first place....Rather than tackle the source of the problem, the people running the bailout desperately want to reinflate the credit bubble, prop up the stock market and head off a recession. Their efforts are clearly failing: 2008 was a historically bad year for the stock market, and we'll be in recession for some time to come. Our leaders have framed the problem as a "crisis of confidence" but what they actually seem to mean is "please pay no attention to the problems we are failing to address."
The piece is very long, but please read it all. You will not be sorry. To do so is to realize that there's a terrible reckoning coming against the financial elite and the politicians that enabled them. In the Lewis-Einhorn account, the problem was not simply individual greed; it was that, plus what Pope John Paul II would have called a "structure of sin." That is, the system was constructed to make it hard for people to do the right thing, and easy to do the wrong thing.
Paul Krugman says it's looking more and more like we're headed into another Great Depression. If he's right -- and let's pray he is not -- we're going to see a populism arise to smite these Wall Street plutocrats and their Washington lackeys. Will it be a healthy populism, aimed at restoring fairness and justice -- or a destructive one, with nativism, mob action and even violence? How can you have one without the other? Thoughts?
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Sorry about that. The captcha posted a previous post, rather than the one I had been working on for an hour.
This software really sucks. Bring back the spam.
No, it's long past time we did what should have been done. End entitlements, cut government spending by 2/3, refuse to "bail out" anything or anyone. "easing the pain" only results in extending it and deepening it. It's time to stop voting by emotion and start voting cold stark reality and rationality.
Hey Baldy - good luck with that...
Nice rant though.
I just read a lengthy article that I found on "Patrick.net", that echoed what I thought from the start; there WAS no credit crunch at all.
This is debatable. I've not read that particular article, but I do recall some discussion in the econoblogosphere about this a while back. See, e.g.:
economistsview.typepad.com/economistsview/2008/10/there-is-a-cred.html
baselinescenario.com/2008/10/25/federal-reserve-bank-lending-survey/
portfolio.com/views/blogs/odd-numbers/2008/11/04/fed-economists-duel-over-crisis-myths
economistsview.typepad.com/economistsview/2008/11/there-is-too-a.html
The first two mainly link to discussions by others on both sides of the questions.
Your name,
Uh...read up some more, and find me some articles that tout what a brilliant move it was to give a bunch of assholes money that they didn't deserve, and show me what GOOD it did.
At this point it's obvious to anyone with a brain that TARP has done nothing to stem the flow of blood and was basically a free money giveaway to shitheads.
We're talking about an in crowd here, a group that helps its own.
There is speculation that Madoff simply went broke, like so many other hedge funds, but claimed fraud to steal taxpayer funds.
The Wall St. chicanery is far worse than most people wanna know.
Robin Thomas -
1. I'm the "Your Name" @ 8:23. Darned captcha....
2. My sole reason for posting above was to clarify that your point regarding the credit crunch (or lack thereof) was debatable. I don't recall mentioning anything regarding the prudence or morality of publicly-funded recapitalizations via TARP.
3. Since you ask, however...although I'm not averse to publicly-funded recapitalization per se, it is not my preference (I have an aversion to most kinds of government spending). Given my druthers, I would've rather seen other measures attempted first. To repeat what I've said elsewhere:
Have some trusted examiners take a hard look at the balance sheets of the major financial institutions & value their assets according to realistic (heck, even pessimistic) assumptions re. housing prices, mortgage defaults (both residential & commercial), economic conditions, etc. Possibly use the resultant haircuts to swap out dodgy assets for safe ones (e.g., Treasuries), ala TARP 1.0. Either recapitalize (the stronger ones) via debt-for-equity swaps, or liquidate (the weaker ones), employing public funds only IOT make depositors whole. I'm not even sure if publicly-funded recapitalization would be necessary under such a regime, but if it were, I'd prefer it be done via loans (*) rather than stock.
4. I suppose I could take offense at your employment of profanity, but you're not saying anything I didn't hear a hundred times over in the Corps. Still, I do wonder what Beliefnet's take on such language is (I've never read the terms of service...).
(*) clusterstock.com/2008/9/hank-paulson-and-ben-bernanke-please-read-this-now
marginalrevolution.com/marginalrevolution/2008/10/net-worth-certi.html
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