Alex Blaze

"I don't understand the economy!" is a feature, not a bug

Filed By Alex Blaze | March 23, 2009 11:30 AM | comments

Filed in: Living, Marriage Equality
Tags: AIG, Barack Obama, credit crisis, education policy, fed, Federal Reserve, finance industry, financial planning, london, Matt Taibbi, money, New York, paul krugman, scandal, timothy geithner, Treasury Department, understanding

Over the past several months, I've been doing my level best to try to keep up with what's been going on in terms of personal finance, Wall Street criminality, and bail-outs as the American financial system swirls in the toilet bowl. I've learned more about the sorts of fucked up things these folks were up to with people's retirement funds, nonprofits' endowments, and trillions in federal money in the past six months than I learned in my whole life before that.

And I don't think I'm alone. I think quite a few of us who are concerned with this country's future have been, on some level, trying to make up for years of "I don't have a portfolio, so why should I care?" and "It's so complicated and boring, but I'm sure someone's making sure it keeps on going in its normal, exploitative-as-always path and not devour the world economy!" It's the joy of being concerned about people who were so greedy that they'd even, say, manipulate their buddies on CNBC to help them run short-selling schemes. Or steal money from a Holocaust-remembrance charity.

What's important to realize is that that's exactly what they want you to think. (And that "they" is all the thieves and people who would be labeled thieves if our society were sane.) They don't want you to understand, because if you understood just how much time each day these folks waste thinking about how to take your money home with them, we would have shut the shit down on these clowns years ago. They don't want you to care, because if you did then the music would stop and they'd be left holding billions in toxic CDO's, not your government.

We're supposed to want to just leave it to who we imagine to be either the wise, responsible, and benevolent leaders of Wall Street or, at least, the scheming, cunning, but kept-in-check greed-heads. Because when we do, they pretty much do whatever they want, and we foot the bill with our money, which we get through, I dunno, actually doing something productive.

Here's how Matt Taibbi put it last week in Rolling Stone (of all magazines):

God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system -- transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It.These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

And because of that we're fucked. These people control a whole lot of power because we don't know enough about the financial system and what the government should be doing to regulate it to know when to be concerned, when to be hopeful, and when to be pissed off.

Last week the story that dominated the news cycle was about those massive bonuses AIGFP handed to its executives, the same people who took the over a 100-year-old firm and wasted its credit rating, its reputation, and its money developing exotic finance tools that neither their regulators nor their clients fully understood. The amount of money spent on those bonuses - around $165 million - isn't much in the face of the money we're spending to try, in vain, to fix the problem and return to the 90's. But it sure made people angry.

And understandably so. While people don't know the ins and the outs of what's going on at AIGFP, most people basically understand that the rot that was in the system before the financial crisis is still there, with the full knowledge of the government. While most Americans don't understand the financial tools AIGFP was creating, they have figured out that some people are so insanely greedy that they're willing to take the entire world down if they can make a few bucks and that the government is too compliant to do anything to stop them.

So the anger at the bonuses at AIGFP isn't exactly the problem, it's the fact that that chapter in American history where some people worked their asses off to get their hands on other people's money but provided nothing useful to society*, all the while expecting the government to subsidize their jobs by assuming their risk, was supposed to be over. Most Americans are already paying the price of this depression by losing their jobs, losing benefits, taking on extra work without extra pay, and losing income. The burden of getting out of this funk was supposed to be shared, not borne by everyone not working on Wall Street while they continue to get their disgustingly huge compensation and party at Bagatelle.

The bonuses made it obvious that change hasn't come to America and that we're not on the path to renewal. Matt Taibbi outlines several other reasons why: further mergers in the finance sector have created more all-powerful, too-big-to-fail firms; the all-too-cozy relationship between the Obama Treasury Department and major players on Wall Street like Goldman Sachs; and smaller, regional commercial banks that need help cannot access TARP (the big bailout from late 2008) money.

And Timothy Geithner's plan for banks, presented this past week, doesn't do much to get banks back to a manageable size with manageable problems, instead focusing on absorbing toxic assets to relieve these folks of the negative consequences of the risks they took.

Of course, most Americans aren't following that closely, and, unfortunately, their anger seems to be the only check on the American financial system that works. Congress and the White House sure as hell don't feel like doing much. The Fed's out of options and the SEC can't do everything. The Treasury Department seems hell-bent on bailing out the banks' investors instead of saving the industry's ability to finance America. And internal regulatory sources, like counter-parties to bad contracts and shareholders, have all the proof they need now that they'll be bailed out by the government before anyone else, reducing any need on their part to make these firms behave like firms that care about their long-term future.

We've got to get more educated and learn when people like Ruth Marcus and Andrew Feldstein are lying and bending the truth to ensure their cash cow's longevity.

And so that we can get pissed off. Again. And again. Until our government actually comes to fear us more than their corporate donors, and know that even though they try to dupe us, we can and will take our votes elsewhere.

Is that expecting too much from the US of A?

*To the folks who protest that the financial sector provides valuable services to society, I agree. I'm referring to folks who sold as many credit default swaps as they could to earn outrageous bonuses from their now-government-subsidized firms. A credit default swap doesn't build a house, it doesn't educate a child, and it doesn't cure someone's disease. If you want to defend the finance sector compensating their employees however they want, go right ahead. But please explain why we should be left footing the bill for the inflated salaries of folks who are harming us.

Also too, the Matt Taibbi article quoted above is must-read, especially if you haven't been paying attention but want to start now. It has a good history of the players involved and part of what caused this clusterfuck.

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Excellent article, Alex.
Thanks for the writing you do here at Bilerico project...I almost always come away from it feeling more informed and inspired to get active about whatever the issue may be.

Thanks for your kind words, Mona.

A. J. Lopp | March 23, 2009 3:55 PM
Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?

This question gets to the crux of the anger that the American people are now feeling, even more than the anger over the AIG bonuses.

The answer to that question, though, is complicated by these facts (or at least I will call them "facts"):

(1) We did not have in place all the regulations that we needed, therefore certain actions that should have been criminal are not technically criminal;
(2) The regulations that we did have were not enforced;
(3) There are so many people who could be blamed that it is difficult to finger particular individuals without being arbitrary and unfair;
(4) Because some regulations were nonexistent, and certain regulator said OK when they should not have, it is difficult to establish that any particular step in the process constitutes "criminal" activity; and, finally,
(5) throwing certain people in jail might create a certain sense of justice among a certain segment of the citizenry, but it will not fix a damn thing; and
(6) with a limited amount of time, attention, and effort at hand, do you want people in jail or do you want an economy that is (hopefully) on the mend?

On the other hand, letting the "crack addicts" continue to run the show clearly is not the answer, either. But if you cannot convict them, then how do we get rid of them?

Robert Ganshorn Robert Ganshorn | March 25, 2009 2:11 AM

And of course, Bernie Madoff's daughter married an SEC regulator...

What do we do with computer hackers? We hire them to build firewalls!

The first chairman of the SEC under Roosevelt was Joseph Patrick Kennedy, (father of John F) and he had been a very successful margin trader and breaker of laws (that he later helped create) that allowed advantage to the connected few. At the time he was appointed it was truly the fox in the chicken house, but amazingly, the old bootlegger did a splendid job for the SEC when it was first created. He knew the angles, he knew where he had cheated and he know what to do.

The SEC must be proactive and the oiliest traders should be recruited to fix regulation loopholes they drove trucks though to avoid prosecution. It should be an ongoing process of the SEC which Bush allowed to wither with the "free of regulation" mantra.

I doubt the SEC could pay them enough to fill those holes.

Or they could just be like Geithner or Paulson, interested in creating more loopholes for their buddies.

In other words, we already tried your idea and it made things worse. Since we already know a great deal about what these folks are doing to run off with money and don't need expertise so much as we need honesty and values, why not finally hire some people who care about America more than their bank accounts?

Taibbi wasn't advocating putting them all in prison. He was advocating solving the problems you outline and raising the question: "Why isn't what they did criminal?"

You are not alone. Even Bernake and Alan Greenspan don't understand the global economy. It has simply gotten too complex and bound to implode. Hope is a joke.
About Geitner's latest strategy that helped raise the Dow Jones Average 500 points due to greedy traders today. Taxpayers will have to pay the burden. Revolution is at hand. Taxation without representation for LGBT'S. I advocate that the 18,000 married same sex couples in California not file taxes due to discrimination in the tax code due to DOMA. It is the only way we can zap the mindset of the Obama administration. Get the government at their weakest. Check this out. Obama doesn't know bum fuck about the economy unless it pertains to the NFL or basketball, and Geithener is one of the Wall Street sharks.'s-Plan-%22Extremely-Dangerous%22-Economist-Galbraith-Says?tickers=%5Egspc,%5Edji,c,bac,jpm,WFC?sec=topStories&pos=2&asset=TBD&ccode=TBD

A. J. Lopp | March 24, 2009 1:00 PM

If there is any one person that set us up for this fiasco, it is Alan Greenspan, I am sorry to say. He was the intellectual figurehead of the "the capitalist market will self-regulate" ideology that the GOP has clung to for decades as if there were no clearer truth in the universe. The moment the mortgage and banking industries were allowed to make huge profits on writing shoddy loans and selling the risk off to others who didn't understand those risks, self-regulation vaporized instantly and there was a feeding frenzy. And like a man jumping off a New York skyscraper, Greenspan kept saying, "So far, so good!" as he zoomed past the lower floors.

Rick Elliott | March 24, 2009 8:33 PM

I read an article in CHRISTIAN CENTURY that made a scary point. In the USA the differential between upper management compensation and regular workers was 340-1. The country closest to that difference was Great Britain at 25-1. France, Germany and Japan were around 10-1. The article also pointed that more and more assets were in the hands of fewer and fewer people. The article also pointed out that in Eisenhower's term the highest tax bracket was 90%. Under Nixon if was 72% and under Bush it was 37%. Even during the Clinton years it was 39%. As a historian I remember seeing the palaces of the Russian nobility in Tsarskoe Selo, outside of St. Petersburg. Then I remember pictures of living conditions elsewhere in Russia. It took the financial debacle of WWI to topple the house of cards. Then those images were an overlay of the data I read in that article and I felt a cold chill run down my spine. Is there another American revolution in the future, when folks finally get fed up. We got a foretaste in Obama's election. I hope it will be a peaceful revolt that evens things out.
Britain faced the financial gap several decades ago and acted. The highest tax bracket was 102%.
No one seems to be saying much about the debt load our nation is accruing. I vaguely remember hearing it would be over 20% of the national budget. Under Louis XVI debt service was 48% of France;s budget. The aristocracy paid virtually nothing. Then another revolt that cost many of them their heads.
What will the I'VE-HAD-ENOUGH level be in our country?

I read an article in CHRISTIAN CENTURY that made a scary point. In the USA the differential between upper management compensation and regular workers was 340-1. The country closest to that difference was Great Britain at 25-1. France, Germany and Japan were around 10-1. The article also pointed that more and more assets were in the hands of fewer and fewer people. The article also pointed out that in Eisenhower's term the highest tax bracket was 90%. Under Nixon if was 72% and under Bush it was 37%. Even during the Clinton years it was 39%.

That's the message we need to get out: the America we have now is anything but normal. We had much more prosperity in the US when the government was big, taxed a lot, and worked effectively.