Wednesday, April 28, 2010

Are the banksters we have the bankers we deserve? Part 2


Last night we left returned banker and former Sgt. Al Stephenson (Fredric March) being dressed down by his boss, Mr. Martin (Ray Collins, before he joined the LAPD to be shown up weekly by Perry Mason as investigative buffoon Lieutenant Tragg), for approving a loan to collateral-less vet-farmer, the very day Al was to be honored as a returned war hero at this banquet. Here an already tipsy (and getting tipsier) Al, with his alarmed wife Milly (Myrna Loy) looking on in dread, says some things bankers weren't used to hearing back then -- and would be fond of hearing today.

"[T]he Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s. . . .
"[I]n England last year . . . Goldman's international adviser, sounding exactly like a character in Atlas Shrugged, told an audience at St Paul's Cathedral that "The injunction of Jesus to love others as ourselves is an endorsement of self-interest".

-- Matt Taibbi, in "Will Goldman Sachs prove
greed is God?," in The Guardian Saturday

by Ken

Some of the Democrats are actually keen to do some serious financial-system reform to restore some measure of stability and give the nonrich some protection from our Big Money overlords, but many Democrats are more attuned to seeing what's the least they can get away with doing to satisfy the (to them) surprising public appetite for some sort of financial system reform, without making their Wall Street patrons too mad.

The Republicans, meanwhile, even more astonished by the current public touchiness about Wall Street palsy-walsy-ism (do these pols live in a bubble or what?), are looking to find out, preferably in suitably secret back-room negotiations, what's the very most it has to concede without jeopardizing its reclamation of those financial overlords as paymasters.

If you have any interest in a rigorous examination of the proper role of the banks, and suggestions for reforms based on that, there is now an excellent resource in the form of a post by The Agonist's Numerian, "Basic Principles of Modern Banking Which Should Guide Bank Reform." But it doesn't seem likely that this is going to figure in any eventual "reform" package. At the moment the course of legislation is being framed by the Republicans' precarious tightrope walk on the one end and the embarrassment of the Goldman Sachs debacle on the other.

APRIL 28, 2010

Goldman to Employ So-called ‘Douchebag Defense’

Fabrice Tourre to be Exhibit A

NEW YORK (The Borowitz Report) – In the event of a criminal case against the banking giant, Goldman Sachs is planning to employ a rarely-used legal strategy known as the “douchebag defense,” sources confirmed today.

Davis Logsdon, Dean of the University of Minnesota School of Law, summarized the unorthodox strategy: “Basically, they will be arguing that the Goldman executives had no control over their actions because they are ginormous dicks.”

“Exhibit A” if the bank decides to go forward with the douchebag defense will be Goldman banker Fabrice “Fabulous Fab” Tourre.


I think the government would have a hard time arguing that he was not an egregious douche,” Logsdon said.

In order to establish Tourre’s douchebag bona fides, Goldman’s lawyers would most likely offer up his emails, his Facebook profile, and several of his ex-girlfriends.

Jury selection could also be key to the success of Goldman’s douchebag defense strategy, Logsdon said.

“Goldman’s dream jury would be made up of twelve angry dickwads,” Logsdon said. “In New York, that shouldn’t be hard to find.”

Speaking of the Goldman Sachs case, yesterday I mentioned Matt Taibbi's sensational piece in The Guardian, warning that we would probably be coming back to it. Well, here we are. At the outset Matt notes that "legally, the case hangs on a technicality."
Morally, however, the Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s -- and in the years since has aped other horrifying American trends such as boybands and reality shows in spreading across the western world like a venereal disease. [All boldface emphasis added.]

While, outside of America, Russian-born Rand is probably best known for being the unfunniest person western civilisation has seen since maybe Goebbels or Jack the Ripper (63 out of 100 colobus monkeys recently forced to read Atlas Shrugged in a laboratory setting died of boredom-induced aneurysms), in America Rand is upheld as an intellectual giant of limitless wisdom. Here in the States, her ideas are roundly worshipped even by people who've never read her books or even heard of her. The rightwing "Tea Party" movement is just one example of an entire demographic that has been inspired to mass protest by Rand without even knowing it.

Last summer, Matt notes, he wrote "a brutally negative article about Goldman Sachs for Rolling Stone magazine (I called the bank a 'great vampire squid wrapped around the face of humanity') that unexpectedly sparked a heated national debate," a debate between "people like me, who believed that Goldman is little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams" and "people who argued Goldman wasn't guilty of anything except being 'too smart' and really, really good at making money."
This side of the argument was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealised heroes, the saviours of society.

In the Randian ethos, called objectivism, the only real morality is self-interest, and society is divided into groups who are efficiently self-interested (ie, the rich) and the "parasites" and "moochers" who wish to take their earnings through taxes, which are an unjust use of force in Randian politics. Rand believed government had virtually no natural role in society. She conceded that police were necessary, but was such a fervent believer in laissez-faire capitalism she refused to accept any need for economic regulation -- which is a fancy way of saying we only need law enforcement for unsophisticated criminals.

Rand's fingerprints are all over the recent Goldman story. The case in question involves a hedge fund financier, John Paulson, who went to Goldman with the idea of a synthetic derivative package pegged to risky American mortgages, for use in betting against the mortgage market. Paulson would short the package, called Abacus, and Goldman would then sell the deal to suckers who would be told it was a good bet for a long investment. The SEC's contention is that Goldman committed a crime -- a "failure to disclose" -- when they failed to tell the suckers about the role played by the vulture betting against them on the other side of the deal.

Now, the instruments in question in this deal -- collateralised debt obligations and credit default swaps -- fall into the category of derivatives, which are virtually unregulated in the US thanks in large part to the effort of gremlinish former Federal Reserve chairman Alan Greenspan, who as a young man was close to Rand and remained a staunch Randian his whole life. In the late 90s, Greenspan lobbied hard for the passage of a law that came to be called the Commodity Futures Modernisation Act of 2000, a monster of a bill that among other things deregulated the sort of interest-rate swaps Goldman used in its now-infamous dealings with Greece.

Both the Paulson deal and the Greece deal were examples of Goldman making millions by bending over their own business partners. In the Paulson deal the suckers were European banks such as ABN-Amro and IKB, which were never told that the stuff Goldman was cheerfully selling to them was, in effect, designed to implode; in the Greece deal, Goldman hilariously used exotic swaps to help the country mask its financial problems, then turned right around and bet against the country by shorting Greece's debt.

What Matt describes as "the really weird thing" is that, "confronted with the evidence of public outrage over these deals, the leaders of Goldman will often appear to be genuinely confused, scratching their heads and staring quizzically into the camera like they don't know what you're upset about." He insists it's not an act, that what separates Goldman from history's many other greedy financiers and banks is "its truly bizarre cultist/religious belief in the rightness of what it does."
Even if he stands to make a buck at it, even your average used-car salesman won't sell some working father a car with wobbly brakes, then buy life insurance policies on that customer and his kids. But this is done almost as a matter of routine in the financial services industry, where the attitude after the inevitable pileup would be that that family was dumb for getting into the car in the first place. Caveat emptor, dude!

People have to understand this Randian mindset is now ingrained in the American character. You have to live here to see it. There's a hatred toward "moochers" and "parasites" – the Tea Party movement, which is mainly a bunch of pissed off suburban white people whining about minorities consuming social services, describes the battle as being between "water-carriers" and "water-drinkers". And regulation of any kind is deeply resisted, even after a disaster as sweeping as the 2008 crash.

This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman's only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman's Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation -- which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It's an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed without limits.

It's hard to think of a more entertaining recent specimen of American political theater than the spectacle of the tribal chieftain of the Republican "Just Say No" obstructionists, Senate Minority Leader Miss Mitch McConnell, having to view video clips of his own past lies on the Senate floor. Naturally the Republicans, stuck-pig-like, squealed foul, in accordance with the invariable right-wing rage anytime their own actual words and deeds are recollected -- even as they insist on their right to make up and disseminate (via the famous, implacable Right-Wing Noise Machine) any delusion or lie they choose to fabricate, no matter how outrageous and counterfactual, about their opposition. But of course, being a right-winger in modern times means you're in permanent and violent conflict with even the ghostliest hint of truth, reality, sanity, or decency.

I realize that in this stew of present-day politico-economic sophistication, it's hopelessly naive to be quoting The Best Years of Our Lives" on proper banking procedures and appropriate risk-taking. But I guess I don't agree that what our friend banker-sergeant Al Stephenson has to say about banking and risk in tonight's clip. Remember, it has to be understood in the context of the loan he authorized for that veteran who wanted to buy a farm without collateral. Recall the argument Al made:
In the Army I've had to be with men when they were stripped of everything in the way of property except what they carried around with them -- and inside them. I saw them being tested, and some of them stood up to it, and some didn't. But you got so you could tell which ones you could count on. I tell you, this man Novak is okay. His -- collateral is in his hands, and his heart, and his guts. It's in his right as a citizen.

Here's what Al has to say in his drunken speech:
One day on Okinawa a major comes up to me and he says, "Stephenson, you see that hill?" "Yes, sir, I see it." "All right," he said, " you and your platoon will attack that hill and take it." So I said to the major, "But that operation involves considerable risk. We haven't sufficient collateral." "I'm aware of that," said the major, "but the fact remains that there is the hill, and you are the guys who are going to take it." So I said to him, "I'm sorry, major, no collateral, no hill." So we didn't take the hill, and we -- lost the war. I think that little story has considerable significance, but, uh, I've forgotten what it is.

It may sound as if Al is arguing the Goldman Sachs position, that bankers need to embrace risk. (Remember, after all, that the justification of Mr. Milton the bank president for enforcing prudence on loan applications is the bank's responsibility to protect the money of its depositors.) The apologists for the modern system of crony capitalism we've developed always insist that those preposterously inflated salaries we pay to thieving incompetent CEOs and hack predators like the Wall Street pirates are justified by the "risks" they take, even though of course they take virtually no risks. They have, in fact, virtually eliminated risk from their business model, even in the extreme case of the economic meltdown they engineered, from which they emerged not only whole but actually enriched.

As many people have pointed out, the system of phony capitalism, the system defended with such fervor by senators like Miss Mitch and Arizona's John Kyl and Alabama's Richard Shelby we've developed is "capitalist" only insofar as there are profits, which are gobbled up by the grotesquely overpriced titans of industry and finance, who share less and less of those winnings with the people who perform actual work on their behalf. (Shelby at least displays a dab of honesty in attributing his opposition to the Democrats' financial reform proposals to his opposition to the "radical" consumer protection board. Although I suspect he has more basic objections, I don't doubt for a moment that he loathes the idea of a government body charged with protecting the interests of ordinary citizens. These right-wing "capitalists" are pretty uniform in their hatred for unions or any other structure that stands between the superrich and their unfettered greed.)

When it comes to losses, however, those are socialized. Indeed we have something close to pure socialism, ;which the right-wing delusionals -- or just plain liars -- claim to find in President Obama's obsessively centrist agenda. No, the Confederate faux-capitalists are unanimous in drawling their approval for unfettered socialism when it comes to corporate losses, which are mandated to be shared by all of us. Or maybe not even "shared"; we're invited to simply pick up the tab, since the corporate titans are protected by so many layers of contractual insulation. Such as those plunder-like rewards for jacking up a company's stock price by any kind of chicanery the chief can get away with, without any penalty for drops in the company's actual value) -- including, in the extreme case, the brave new world of golden parachutes.

I want to return now to the end of Al Stephenson's banquet speech, as seen in tonight's clip:
I love the Cornbelt Loan and Trust Company. There are some who say that the old bank is suffering from hardening of the arteries, and of the heart. I refuse to listen to such radical talk. I say that our bank is alive, it's generous, it's human, and we're going to have such a line of customers seeking, and getting, small loans that people will think we're gambling with the depositors' money. And we will be. We'll be gambling on the future of this country."

When was the last time the megacorporate predators or financial titans gambled on the future of this country, or even of the increasingly interconnected world reflected but never really championed in the concept of "globalism"? When was the last time they attempted to build anything, or create anything except new schemes for ever cleverer if shadier and intentionally more inscrutable "deals"?

Paul Krugman has been pointing out repeatedly that one thing we shouldn't be worrying about in trying to rebound from the meltdown is rebuilding the financial sector, because the oversize financial sector of modern times has been the problem, not any part of the solution. Contrary to the delusion that it was involved in "creating wealth," pretty much all it did was to move numbers around, trying to make sure that as many of those numbers as possible, converted into fungible form, dropped into their greedy maws, without the slightest obligation on their part to produce anything or share any of the plunder.

Of course they shared some of that plunder. As a necessary business expense, they shoveled chunks of it into the pockets of the very politicians who are now charged with reforming the financial system. For anyone who doesn't see the difference between that and "gambling on the future of this country," well, never mind.

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At 6:58 AM, Blogger Bula said...

Nailed it!

At 5:23 PM, Anonymous Anonymous said...

You're a communist, nothing more.


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