Ezra Klein Should Stick to Being Wrong About Health Care

A recent post by Ezra Klein, “What ‘Inside Job’ got wrong,” manages the impressive feat of being spectacularly off base, rhetorically dishonest, and embarrassingly revealing of the lack of a moral compass all at once.

Since being off base is a major part of Klein’s brand, I suppose one should not be surprised; those who’ve had the good fortune to have limited contact with his output can read Jon Walker’s “Ezra Klein: Insurance Exchanges Don’t Work and Must be Expanded Dramatically,” or Physicians for a National Health Care Program’s “Does Ezra Klein really think ‘managed care didn’t kill anyone’?” for two of many examples.

I’m going to shred this piece in some detail, first, because it will be entertaining, and second, I hope that it will encourage readers to take a cold, bloodyminded look at the excuses made for malfeasance in our elites.

Let’s start at the top:

I finally watched “Inside Job” this weekend. It was an excellent documentary for people who don’t want to understand the financial crisis but want to believe they would’ve seen it coming. Watching it, you’d think that the only people who missed the meltdown were corrupt fools, and the way to spot the next one is to have fewer corrupt fools. But that’s not true. Worse, it’s dangerously untrue. In telling the wrong story about how the financial crisis happened, it misinforms about how to keep it from happening again.

The only objection Klein raises to Inside Job is that it punctures the favorite defense of economists, regulators, and their mouthpieces in the media “whocoulddanode?” Klein rejects the notion that corruption played a role; there no effort to rebut the evidence proffered in Inside Job and numerous other accounts (including on this blog and in ECONNED). He simply sidesteps the issue of corruption via straw-manning: “corrupt fools”.

The most corrupt were decidedly not fools, they knew better and still took the destructive, profitable course. One can say a lot of bad things about Larry Summers, but no one would call him a fool, and given his track record (Inside Job sidesteps Summers giving his pal Andrei Shleifer a free pass over allegations of self-dealing in Russia that Harvard had to pay at least $31 million to settle), the “corrupt” label fits all too well. Similarly, it is no accident that the hedge fund Magnetar, which successfully bet against lethal CDOs that it created, was named a type of star that emits copious amounts of toxic radiation. Bear Stearns, hardly known for having an elevated sense of morality, still refused to create CDOs for John Paulson in 2005 because it was obvious to them that the deals would be designed to fail. But pretty much everyone else on the Street was happy to peddle the finance equivalent of sewage to their clients. And that’s hardly a new tradition; the Frank Partnoy book FIASCO describes how he and his colleagues took great pride in the early 1990s ripping off the faces of customers and blowing them up (their lingo, not mine)

And courtesy Richard Smith, let’s look at some of Klein’s rhetorical sleights of hand:

Watching it, you’d think that the only people who missed the meltdown were corrupt fools (straw man), and the way to spot (no, avert, not “spot”; you are getting ahead of yourself, the next few paras are about spotting) the next one is to have fewer corrupt fools. But that’s not true (isn’t it? would a lower corrupt fool quota help, or not?). Worse, it’s dangerously untrue (how: what’s untrue? what’s dangerous?). In telling the wrong story about how the financial crisis happened (unsubstantiated assertion), it misinforms about how to keep it from happening again (unsubstantiated assertion).

From this unpromising start, the post goes completely off the rails. Yes, Klein makes weak attempts to fulfill some of the charges made, but as we will see, they range from not-terribly-convincing to outright absurd.

But first, we need to perform an osculectomy, which former investment banker and New York Observer columnist Michael Thomas has outed as a surgical procedure only done on a very hush-hush basis in New York, Los Angeles, and Washington, DC. It becomes necessary when Party A has kissed the ass of Party B with such intensity that a vacuum bond is formed that is so strong that it can only be broken by surgical intervention. In this case, Klein needs to be forceably detached from the posterior of Michael Lewis.

Klein holds up Michael Lewis’ book The Big Short as the ne plus ultra on the financial crisis. That’s mighty peculiar, since Lewis wrote about the subprime shorts, a subset of players involved in the US mortgage mess (which itself was the detonator rather than the totality of the financial crisis), and even then only some carefully selected players (his most notable omission is John Paulson). And it isn’t even the best account of this investment strategy; the more comprehensive and instructive book there is Greg Zuckerman’s The Greatest Trade Ever, which was published five months before The Big Short . As we wrote in March 2010:

Lewis’ tale is neat, plausible to a mass market audience fed a steady diet of subprime markets stupidity and greed, and incomplete in critical ways that render his account fundamentally misleading. It’s almost too bad the book’s so readable, because a lot of people will mistake readability for accuracy, and it’s a pity that Lewis, being a brand name author, has been given a free pass by big-name media like 60 Minutes (old people) and The Daily Show (young people) to sell to an audience of tens of millions a version of the financial crisis that just won’t stand up – not if we’re really trying to get to the heart of the matter, rather than simply wishing to be entertained by breezy well-told stories that provide a bit of easy-to-digest instruction without challenging conventional wisdom.

The balance of the post provides ample support for those charges.

Klein’s touting of Lewis is in keeping with his posture towards the crisis: he wants to stay on the well trodden path of accepted narratives. And that serves the perps just fine. Complexity, opacity and leverage were the generators of this disaster; the more the financial services industry can do to deter investigation into them, the better.

The piece gets even more bizarre:

In 2007, Lewis wrote a piece mocking the worrywarts trying to sound the alarm at Davos. “Davos,” he wrote, “is where people with no talent for risk-taking gather to imagine what actual risk-takers might do.”

It’s ironic that Lewis, who later wrote a book lionizing outsiders who bet against the herd mentality when they were later proven right, took the low risk course in early 2007 and ridiculed nay sayers. If you read the short Bloomberg piece, Lewis was the loud and proud mouthpiece of conventional superficial nonsense circa January 2007: he had bought the Great Moderation and the idea that the world had actually reduced risk significantly by slicing, dicing, and trading it. Before you say it’s easy for me to say that, in post four days before the Lewis piece, “The Beginning of the End?“, we wrote:

We’ve commented from time to time on loose credit conditions (see our “Rising Tide of Liquidity“, plus Part 2 and Part 3 on the same topic) and indifference to risk (“Where Has the (Perception of) Risk Gone?“).

The tide may be turning. Today, the New York Times had a lengthy, well researched article, “Tremors at the Door,” on the reversal of fortune in the subprime mortgage market. Defaults by borrowers have risen to a level where the lenders themselves are increasingly in jeopardy:

Yet Klein tries to invert the interpretation of this embarrassingly bad Lewis piece:

He knows financial markets, knows the people in financial markets, and knows the products in financial markets. But he missed it. Completely. And no explanation of the financial crisis that doesn’t have room for Lewis to miss it is sufficient.

What kind of meshugas is this? Because Klein’s favorite financial writer missed the onset of the crisis, we are to give all the analysts, economists, regulators, and bankers a free pass? And he can say this with a straight face after the Financial Crisis Inquiry Commission documented in far more detail than Inside Job that there were plenty of warning signs?

Let’s get down to real basics: can Klein simply not tell the difference between Lewis, a bond salesman 25 years ago, and author/journalist since then, and a genuine in-touch expert on some aspect or other of modern finance?

Or do we assume Klein does know the difference, which makes Klein’s remark a decidedly, not to say, insanely journalist-centric view of the crisis. I shall not speculate about why a journalist who doesn’t know anything about finance might be tempted to conclude that the crisis was actually all about journalism. Still, it’s impressive (though not necessarily in a good way) to see someone actually publish that conclusion, quite unselfconsciously; if that’s what he meant to say.

And this is where Klein’s choice (whether deliberate or out of learned blindness) is particularly convenient ; it’s the device he uses to dodge the central issue of corruption. As Tom Adams noted via e-mail:

I am fairly amazed that someone purporting to be writing about how “inside Job” is dangerously wrong can spend the entire rest of the article discussing Michael Lewis.

In so doing, Klein ignores the most obvious reason that he is effectively confirming his own summary about “Inside Job” – that it suggests anyone who didn’t see it coming was corrupt.

Obviously – the answer is that Lewis has been corrupted as well. It’s not the hard corruption of CDO salesmen saying the CDO manager was independent when he was fig leaf that allowed the bank to dump its toxic exposures, or of mortgage brokers telling their customers they were getting a 30 year fixed rate mortgage and instead giving them documents for an options ARM at closing, but it is a form of corruption nevertheless. He is a member of the NYC media elite, a group enraptured by its own wonderfulness. For Lewis and his peers, the crisis aws an excellent marketing device and they exploited it for their own purposes. Lewis was not interested in explaining (or anticipating) the financial crisis. He was interested in selling books. With his books, he is also deeply in love with his own narrative devices – outsider takes on the establishment, acts unconventionally, wins.

He was not looking to explain why everyone got it wrong nor did he bother to take on two of the biggest forces in the market – Paulson and Magnetar – because they didn’t fit his narrative. And the narrative was what mattered because Lewis has honed his storytelling approaches and has a large audience eager for more stories that present the same arc. That is what the was selling, not the “truth”.

Then Klein tries the dodge because no one saw the particular way the crisis played out, no one can be held responsible for not seeing it:

A lot of observers understood we had a housing bubble — Dean Baker, for instance, had been sounding the alarm for years — but few of the housing skeptics saw everything going on behind the bubble: That the subprime mortgages had been packaged into bonds, that the bonds had been sliced into tranches, that the formulas being used to price and rate the tranches got the variable expressing correlation wrong, that an extraordinary number of banks had purchased an extraordinary amount of insurance against getting that correlation wrong from AIG, that AIG had also priced the correlation wrong and would be unable to pay its debts in the event of a meltdown, that a meltdown would freeze the mostly unregulated shadow market that major financial institutions and players used to fund themselves, that the modern financial system was so fragile that an uptick in delinquent subprime mortgages could effectively crash the global economy.

Klein needs to get out more. See the fallacy in his reasoning? Note he demand that someone have foretold the specific path the crisis went down for them to get credit for having called it. And as an aside, par for his knowledge of the crisis, Klein’s discussion of AIG is badly confused. He mistakes the damage that the collapse of AIG would have caused via its status as being the world’s biggest insurer (which would have been horrific) with the losses that resulted from AIG having written credit default swaps on subprime-related CDOs that it could not honor (you can debate how much that ultimately cost, but the New York Fed forked over roughly $30 billion, which is a large but not financial-system-wrecking number).

Why is Klein’s requirement that someone have been able to project the course of the crisis unreasonable? Even if you can specify PERFECTLY the rules that govern how a system works, in a system subject to not all that many forces, it quickly becomes impossible to make an accurate forecast. This issue was identified in 1899 by mathematician Henri Poincaré, who won a prize for demonstrating that a long-unsolved puzzle from physics, that of determining the movements of three or more celestial objects (meaning their gravitational forces could affect each other), was for all practical purposes unsolvable. You needed to specify their initial conditions (mass, location, velocity) to such an extraordinary degree of precision that even a miniscule error leads the
actual path of the object to diverge from the predicted path. Those deviations increase as time passes, so that the actual path may lose all resemblance to the predicted path.

Think of how much more complicated our financial system is than the movements of three celestial bodies. We can’t specify how actors operate with highly accurate mathematical formulas. We have a lot more than three actors. Therefore any attempts to predict what will happen are likely to be subject to the same problem that Poincaré stumbled upon: even if you can describe the forces at work accurately, you cannot make useful predictions, at least not over anything other than very short time frames.

But you could nevertheless very clearly see in late 2006 and 2007 that Things Were Going to End Badly merely by reading the Financial Times. You could tell we were in the midst of a global credit mania. There was regular discussion of the “wall of liquidity”. Credit spreads for every type of lending were at unprecedented, astonishingly low levels by any historical standards. It was not hard to anticipate with so much profligate lending going on in every sector of the market that there would be tremendous losses down the road.

If you want to see what a financial services expert who was not a credit markets insider could infer before the crisis, I suggest you read the paper released in April 2007 by an equity analyst, Henry Maxey of the UK investment management boutique Ruffer. It’s a remarkable piece of work.

Cracking the Credit Market Code

We then get to more dictation from the Ministry of Truth via Klein:

What’s remarkable about the financial crisis isn’t just how many people got it wrong, but how many people who got it wrong had an incentive to get it right. Journalists. Hedge funds. Independent investors. Academics. Regulators. Even traders, many of whom had most of their money tied up in their soon-to-be-worthless firms. “Inside Job” is perhaps strongest in detailing the conflicts of interest that various people had when it came to the financial sector, but the reason those ties were “conflicts” was that they also had substantial reasons — fame, fortune, acclaim, job security, etc. — to get it right.

Huh? He can write this with a straight face? He has the incentives 100% wrong.

Asset bubbles are very popular. They look like increased wealth to the community. That’s why regulators are reluctant to intervene. If they do, they make people look less prosperous immediately, and they can’t prove the counterfactual, if they had left things alone, the damage would have been worse. Recall the orthodoxy then was you couldn’t recognize a bubble in progress, better to clean up afterwords. And that’s before you get to the corruption that Klein is so keen not to discuss: regulatory revolving doors, annual bonus cycles which promote the institutionalized “devil take the hindmost” attitude, known in finance as “IBG-YBG” for “I’ll be gone, you’ll be gone”.

Did Klein miss the rise of access journalism? Clearly so. Even then, the Economist, the oracle of leading edge conventional wisdom, pointed out the existence of a global housing bubble in June 2005, in a can’t-miss-it cover story with lots of supporting analysis. The subtitle: “The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.”

The salient characteristic of this bubble was the so-called wall of liquidity. There were plenty of nervous longs as of early 2007, but they figured they could get out when things got bad. That turned out to be incorrect, and predictably so, because liquidity collapses in bear markets.

But with hedge funds and other money managers subject to monthly reporting, and punished if they show lower performance than their peer group, their incentives are to follow the herd. Contra Lewis and popular wisdom, every mortgage industry conference had worried panels about subprime from 2005 onward. I’ve spoken to industry participants who said they knew they were rationalizing continuing to participate in the market because the institutional pressures were to do so. Other people looked to be making money, so exiting the market would lead to pushback from shareholders. And this behavior isn’t new either. As Keynes said, “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him”

And then we get to Klein giving everyone (most importantly the elites!) a free pass:

And ultimately, that’s what makes the financial crisis so scary. The complexity of the system far exceeded the capacity of the participants, experts and watchdogs. Even after the crisis happened, it was devilishly hard to understand what was going on. Some people managed to connect the right dots, in the right ways and at the right times, but not so many, and not through such reproducible methods, that it’s clear how we can make their success the norm.

This is worse than useless, since Klein incorrectly throws up his hands and effectively says no one can understand what happened and therefore there’s no answer. One of the reasons the crisis has been so “difficult to understand” is that the government and banking elites have been taking extraordinary efforts to obscure the truth. The AIG bailout, the GSE bailouts, the alphabet soup of Fed facilities, the con game of the “stress tests”, the refusal to release information, the ridiculous government programs to “restart” the market, the efforts to deny the mortgage crisis, HAMP, the ongoing efforts to prop up the banks even though the are insolvent, they are all massive efforts at obscuring what really happened and what is still going on. This is not a coincidence; it is a deliberate effort orchestrated by the banks, the Fed, and the Treasury.

And plenty of people have sound proposals for what ought to be done. The best formal work in this area, if Klein would bother doing even the most basic digging, comes from the Bank of England. The answer, in short form, is prohibition: banning certain activities and products, breaking up the banks and implementing other measures to reduce the interconnectedness of the system and contain risk taking.

Before you say we can’t do that, the banks will decamp to the Caymans or innovate around it, let me tell you the dirty secret the finance industry does not want you to know: the ECB or the Fed and possibly even the Bank of England could impose what amounted to a global regulatory regime on the biggest banks any time they wanted to (and that could include hard restriction on lending to parties outside the regulatory cordon sanitarie).

First, any big bank needs to be backstopped by a pretty solid central bank. They all know that even if they harrumph otherwise, no big bank is going to take much counterparty risk with a not-credibly-backstopped big player; they’d see their funding costs rise and the positions they could take reduced, which would quickly reduce profits and those sacrosanct bonuses). Second, all bank payment systems in a particular currency ultimately need to be settled via central bank payment system for that currency (for instance, the US’s Fedwire is the critical dollar payment system) and there is no way for the banks to innovate around that. And the big dealer banks need direct access to Fedwire; going through a correspondent is not viable from a cost and operational standpoint. If you are a serious capital markets player, your need to trade dollar and euro instruments. The need to use to central bank controlled facilities in the dollar and euro means the Fed and ECB could dictate terms if they chose to.

So this gets us back to the issue that Klein wants us to ignore: corruption and capture. The problem is not that there are no solutions. There are steps that we could take now to make modern finance much less risky, but that involves imposing pain on bankers. And that has not happened because, as Simon Johnson pointed out in May 2009, is that the US has suffered a “quiet coup” and is now in the thrall of financial oligarchs. The obstacle isn’t scariness or complexity, it’s the lack of political will.

It’s easy to understand why Klein writes this sort of piece. What is hard to fathom is why anyone, other than his patrons, continues to give what he has to say much credence.

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99 comments

    1. F. Beard

      Unfortunately Lew Rockwell and crew, while excellent at diagnosis, offers a poor solution – a government enforced gold standard.

      A government enforced gold standard is non-libertarian on its face.

      1. attempter

        It’s funny. You’ll never catch an anarchist saying he wants to keep the State around for this or that, but you’ll always find that a “libertarian” does want to keep aggressive Big Government, but only for specially targeted pro-rich, pro-corporate purposes.

  1. Chris

    Really well done. When I read stuff like Klein’s it drives me crazy. I lived at the epicenter of the sub prime insanity. I predicted the eventual outcome based upon the simple fact of how could the median price of housing rise in my area by nearly 100% over the course of 5 years but median incomes stay stagnant? Had many lively discussions with coworkers and friends in the banking real estate business about this. I got my first wake up call when I discovered dean Bakers blog by accident one day from there I learned how it was being done. Did not take more than 2 college economics classes for me to figure it out. Now I admit if I was really smart I would have used this knowledge to financial profit but alas did not.

    1. Susan

      Gosh. You think this rendition is inaccurate then: (Klein on how it imploded) “…the formulas being used to price and rate the tranches got the variable expressing correlation wrong, …that (all) the banks had purchased insurance against getting that correlation wrong,…and AIG priced the correlation wrong.” All just a math error.

  2. Lloyd C. Bankster

    Ezra Klein is a good boy. He does exactly what he’s told and never questions authority. I wish there were hundreds more journalists just like him.

    Wait, this is the USA. There *are* hundreds of journalists just like him. Hundreds? More like thousands.

    Klein? Sorkin? Lowenstein? All good boys. If a bankster says something, your American journalist takes it as gospel and calls it *gravitas*. “Gravitas” being one of their favorite words. What it means is sucking up to banksters in a serious tone of voice, with a *serious* look on your face, although they define it in some other high-minded way. Which, of course, is a load of utter horseshit.

    And there’s no need to bribe your modern journalist either, like in the old days. Now they’re all self-policing.

  3. Max424

    re: Simon Johnson’s “quiet coup”

    I don’t think the coup has been all that quiet. If anything, I believe the Coup Meisters have been raising quite a ruckus.

    It kinda reminds me of when everyone on my street decides to cut the grass at the same time. One lawnmower kicks up, then another, and another, and pretty soon, every mower in my neighborhood (save mine) is roaring.

    After awhile, though, one does acclimate to the din of the lawnmowers — the earsplitting sounds tend to harmonize; to become natural background noise; and I guess that’s the point.

    Note to Yves: Matty Y. is going to be pissed at you, big time! …giggle…

  4. russell1200

    It was this piece that made me start to actively dislike Ezra Kline; note that he is talking to the Secretary of Agriculture:

    http://voices.washingtonpost.com/ezra-klein/2011/03/vilsack_i_took_it_as_a_slam_on.html

    “But I come from a suburb. The people I knew had good values. My mother and father are good and hardworking people. But they don’t get subsidized because they’re good and hardworking people”.

    No one with a clue would say that the typical suburbanite jobs difficulty, from a purely physical point of view, is the equivalent to farm labor. Farm labor (and construction labor for that matter) simply ages people. If people are supposed to be 10 years younger than some bench mark, the physical labor crowd is at least 5 years older than the benchmark.

    Of course he has to whine and bring in his mommy and daddy.

    He further seems to have no understanding of how important food security has played out during 20th century conflicts. To some degree it is what drove the Adolf’s mad land grabs to the east, and thus was one (possibly the) main drivers of starting WW2.

    He just wants cheap food for his suburbanite friends: no matter what the cost.

    1. Gene O'Grady

      Funny thing about it is that when it serves his purposes Klein can be extremely hostile to his parents. They’re baby boomers (apologies for using the most useless term ever) and educators and hence objects of his ignorant bigotry.

  5. eric peterson

    Just when naked capitalism almost completely drives me away with more and more MMT complete nonsense, then they trash the absurd logic and ignorance of Ezra Klein, and they drag me back in.

    1. DP

      Just couldn’t stay away huh? Don’t you get enough intellectual nourishment from the great Mish?

  6. A Good Bankster

    I have to agree with what Brother Lloyd said above: Ezra Klein is a good boy.

    Last time I was near 15th St in DC, I called Klein and asked if he could shine my shoes.

    His immediate response: “cream, paste or wax polish?”

    Now that’s what I call a journalist!

  7. Marcum

    Hmmmmm….Barry Ritholtz is plugging Michael Lewis new book Boomerang…the very morning Yves has a few unkind things to say about the author…wassup with ‘dat?

  8. Michael

    Yves, when you write articles with so many ad hominem attacks they’re barely readable. Fine, good job, you can effectively demonstrate that Klein has oversimplified things and is wrong on some things. But in doing so you also broadly misconstrue what seems to be his main point. Reading his article I don’t get the sense that he doesn’t believe there was any corruption, rather I think he’s arguing you need to build a regulatory system that can handle crises that most people don’t see coming. This is the kind of thing you find warrants 4000 words? http://xkcd.com/386/

    1. Foppe

      The institutional structure for a “regulatory system that can anticipate and prevent crises” was already (mostly) there, so Klein’s suggestion that all would be well as soon as they were somehow magically restored is misleading. Moreover, it would never happen so long as the current crew of kleptocratic clowns rules, so this suggestion is pointless too. Klein probably understands this just fine, but he wants to pretend as though the problem is just that the regulatory agencies were going without asking why they disappeared and became defunct. That is what’s troubling about Klein’s tripe.

    2. bystander

      I’m having difficulty detecting any ad hominem argument in the piece at all. Did you just mean that Yves was being rather rude? It’s not the same thing.

    3. MRW

      @Michael

      “Yves, when you write articles with so many ad hominem attacks they’re barely readable. ”

      Oh no, this was extraordinarily readable. I didn’t read ad hominem attacks. She was attacking the logic.

    4. scott

      For a guy who says that Yves misses the main point, you do a pretty good job of missing her main point – the “regulatory system” has been cognitively and financially captured by the financial actors they’re supposed to be regulating. This isn’t about getting better regulatory tools or a spiffier org chart in order to better do their job “next time,” because the dirty and ill-concealed secret is that they don’t want to do their job. The problem isn’t that the existing regulators didn’t have the insight or resources to figure things out. In “Inside Job” itself, it explains that consumer protection groups were telling the Fed (which has vast regulatory powers that it has used quite creatively – for the banks) annually for almost a decade about the problems in the mortagage industry and that the FBI was discussing the endemic fraud and corruption at work. The global central banking group BIS was warning and practically screaming about it for years. Why do you think that the warnings weren’t heeded and acted upon? Because “most people” in our regulatory institutions didn’t have the brains to understand them or were in a dither about what they could do about them? Or because their closeness to and capture by the large financial institutions profiting from large-scale fraud made it more convenient to look the other way and pretend nothing was wrong? As Upton Sinclair once said, it’s hard to get a man to “understand” smoething he’s paid not to understand, and one way or another the people who were supposed to be watching thought it was in the best interests of their friends and former business associates not to look.

      1. hermanas

        Regulators (of all stripes) will regulate what it is profitable for them to regulate, ie; power corrupts.

    5. ScottW

      A true ad hominem attack is completely devoid of any supporting facts. Think Anne Coulter–“You are a liberal so you should die.” The character attack is the beginning and end of the argument. Here, substantial factual material is provided supporting Yves attack on Klein’s critique. Saying someone engaged in an ad hominem attack as a reason for discounting all of their factual assertions is a form of an ad hominem attack.

  9. Dan

    Isn’t there a certain amount of poetic justice in bankers blowing themselves up by trying to fleece the poor, which is all that subprime, ARM, predatory lending were in effect.

    1. Seth

      Well, yes, it *would* have been poetic justice. Except … they had a back-up plan. They handed the bomb to us and it blew us up. They are kicking back on Grand Cayman Island, having a not-very-poetic laugh at our expense.

  10. Chuck, the world's most invisible robot

    “Ezra Klein is a worthless hank of dog hair. He belongs on a pet-barbershop floor, not where he is, wherever that is, that gets him quoted like he’s the nuncio from liberal common sense. Why he isn’t even a good chew toy.

    For example, what in f*ck is this crap crawl?

    (Insert worthless Ezra Klein crap crawl here)

    Imagine if this guy was advising Henry Clay; why, the Civil War might have come in 1823 – though now that you mention it, that sounds okay, doesn’t it? Okay, let’s have him advising the Continental Congress in the summer of 1776.”

    Originally posted by Owen Paine at stopmebeforeivoteagain

    (Apologies if this comment has posted at NC before)

  11. Valissa

    “What is hard to fathom is why anyone, other than his patrons, continues to give what he has to say much credence.”

    Agreed. Question… who are Ezra Klein’s “patrons”? Klein is a blatant establishment tool/hack and I don’t know anyone who reads his columns or takes them seriously (other than his establishment colleagues). Therefore I’m not sure why Yves wasted her time ripping apart his post, as that gives him more credence than he deserves. Perhaps some need to defend the movie “Inside Job”… though it’s so well rated, reviewed and regarded I can’t imagine why it needs this type of defense (many more people know about the movie than know who Ezra is).

  12. Robert hurley

    I have to agree with the writer who said it was impossible to get by the ad hominem attacks. It also seemed to encourage others to engage in the same tactics. In the end these devices add nothing our knowledge and only reflect poorly on the authors

    1. ScottW

      People who play the civility card–I can’t even listen to you because of your ad hominem attacks–provide cover for the purveyors of false and distorted opinions who roam freely, and in mass, on the mainstream media. Frankly, I think we have been all too kind to the people who fabricate information and pawn it off as fact driving our Nation into war and a failed economy. Some day we need to ask and have answered why the pundits who always get it wrong are invited back to provide us more of their “useful” insights, while those who get it mostly right are sloughed off as extreme, radical thinkers.

    2. Francois T

      Start by learning the true meaning of ad hominem before posting about it.

      http://dictionary.reference.com/browse/ad%20hominem

      ad ho·mi·nem
         [ad hom-uh-nuhm ‐nem, ahd-]
      –adjective
      1. appealing to one’s prejudices, emotions, or special interests rather than to one’s intellect or reason.

      2. attacking an opponent’s character rather than answering his argument.

        1. RalphR

          Let’s see….you find one instance, and I don’t see that makes your case, since I read as a well deserved jibe at Ezra’s construction of the post. Yves explains at some length why relying on Michael Lewis doesn’t pass the smell test.

          1. Robert hurley

            I just pointed out one instance but could have cited others. I am not sure why invective is needed if the facts are on your side. Invective is noise that ultimately weakens any case unless you are appealing to those who are true believers who have no real interest in the facts anyway. The amount of invective here is appalling.

          2. farang

            Mr. hurley,

            I don’t see where paragraph 9 demonstrates ad hominem usage, it defines character. A distinction perhaps too fine for your perception.

    3. L'Aube

      “I am not sure why invective is needed if the facts are on your side.”

      Sometimes facts aren’t good enough Robert, sometimes you have to hit people in the face with a hammer to get their attention (is that a vehement and violent enough example to get yours?)! I likewise don’t see this article as an ad hominem attack, but an outright attack on Ezra Klein (which I support). If people are saying dumb shit, and supporting the dumb shit of others, I see nothing wrong with outing and shaming them for it. For those who despise confrontation as base I can see why this is a problem, but these are serious issues here that have massive effects on peoples lives and need a heated discussion (thus the invectives are also warranted in my opinion). What is the alternative, to talk about these matters in a dry, detached, academic fitting tone? Eff that! As I see it, either people share their emotional swings in these conversations, or if they bottle them up for the sake of a semblance of civility then you run the risk of eventually having them in the streets taking hammers to faces for real because their agony was ignored. Unless you don’t consider this a possibility , then I see you just a shortsighted as all the other hacks in abundance. To me this is not a time for civility, it is a time for outrage, and even out and out rage (pick your hammer).

  13. Jersey Girl

    How does he sleep at night?

    I guess all the trappings of access such as private planes and bottles of Lafite make for good slumber.

  14. Dave Stratman

    Inside Job obscures more than it reveals about the financial crisis.

    The documentary minimizes the extent of the looting of America and the world by the bankers, insurers, and their government enablers. It parades some very guilty and inviting targets across the screen but fails to look deeper into the forces behind the crisis. It obscures the role of the Federal Reserve. It presents some of the perps and other Establishment figures as reliable commentators. Finally the movie offers laughably inadequate solutions to the banking disaster.

    The movie discusses TARP–the $700 billion bank bailout engineered by Treasury Secretary Hank Paulson, fresh from his job as CEO of Goldman Sachs, and the $120 billion bailout of AIG, the world’s largest insurance company. The entire AIG bailout, it so happens, went straight from AIG to Goldman Sachs, paying Goldman 100 cents on the dollar for bad investments it had made in AIG. While the obvious conflict of interest here and the fact that U.S. taxpayers have been left holding the bag for bankers’ losses on unwise, often fraudulent, investments are surely causes for outrage, the amounts in these two instances are mere drops in the bucket compared with the heavy-duty bailouts undertaken in the following months. The combined Bush and Obama bailouts were estimated in July 2009 by Neil Barofsky, Special Inspector General of the Troubled Asset Relief Program, at $23.7 trillion dollars. (According to the NYT, 10/5/10, the Treasury now estimates the cost of the bailout at $29 trillion.) Inside Job’s focus on the relatively piddling amounts–less than a measly trillion dollars, for Pete’s sake–gives an entirely false picture of the extent of the damage that the bankers and government have wrought, the real effects of which will impoverish generations of Americans.

    Inside Job gives the impression that the current economic disaster is the result of the unrestrained greed and egomania of a relative handful of executives and stockbrokers at the highest echelons of the banking industry, aided and abetted by Washington lobbyists and university economics professors, who will apparently justify any crime if paid generous consulting fees by the bankers. To its credit the film indicts both Republicans and Democrats. The disaster begins to unfold as the Reagan Administration promotes the deregulation of Wall Street and of corporate America. The Clinton Administration, which moved Robert Rubin from Goldman Sachs to Secretary of the Treasury, then repeals the Glass-Steagall Act, the Depression-era legislation meant to protect citizens from the rapacity of the banks. The George W. Bush Administration tops this by reducing the staff of the Securities and Exchange Commission, the institution meant to regulate Wall Street, to one.

    Obama reveals himself in the film to be “Wall Street’s man.” Despite running on promises of reform, once in office Obama appointed Larry Summers, Tim Geithner, and reappointed Fed Chairman Ben Bernanke as his economics team. Larry Summers had led the Clinton Administration’s push to repeal Glass-Steagall. Summers was paid $20 million in consulting fees from the big banks in the years before he accepted Obama’s offer to head the Council of Economic Advisors. Tim Geithner was chair of the New York Federal Reserve Bank when Obama nominated him and was up to his neck in the reckless and fraudulent practices of the Wall Street banks. Geithner declared at his Secretary of the Treasury confirmation hearings that he does not believe in regulation. Ben Bernanke, who succeeded Alan Greenspan as chair, had already showed himself to be Wall Street’s man at the Fed.

    The film effectively indicts some of the chief actors in the economic crisis and the pathological culture they represent, but fails to place the earth-shattering crash in the context of real existing class society. Encouraging banks to leverage their bets on Mortgage-Backed Securities (MBS) up to 30 to 1 and even 50 to one; refusing to regulate “innovative” banking practices that were often fraudulent and always intentionally opaque so that clients couldn’t understand them; promoting fraudulent and predatory lending on an unimaginable scale; refusing to indict, prosecute, or even to discipline executives and firms guilty of egregious criminality; permitting firms to pay out billions of dollars in bonuses to their employees and hundreds of millions in salary to their CEOs even while the executives were bankrupting their companies (bankruptcies for which taxpayers were to be held liable): the consequences of these practices were foreseeable and their outcome predictable. They would result in a crash of monumental, unprecedented, global proportions.

    And who would be made to pay for these crimes? Why, the working people of the world, of course. You and me.

    The key point is not that the bankers got rich and the people got screwed. The question is, Why was this allowed to happen? Or rather, Why was it made to happen? This disaster did not happen overnight or by chance. It was engineered over decades of careful undermining of all the post-Depression regulations and legislation that protected people from just such catastrophes. None of the perpetrators of these monstrous crimes have gone to jail. How could the same bankers and bureaucrats who engineered this disaster, which supposedly threatened the very existence of the financial system, not be in prison but rather still be in charge? Because they did the job they were intended to do.

    The banking collapse was a carefully planned strategic attack on the working people of this country and the world. It was designed to do exactly what it is doing here and in Europe: create a massive crisis to justify “austerity” for the masses. This is what Naomi Klein has styled “disaster capitalism” at its most perverse. The capitalist class–the bankers and corporations and the Super-Rich–planned and encouraged this collapse in a thousand different ways precisely to create a disaster so compelling that they could dismantle every social benefit that ordinary people have achieved in the last century and a half. Tens of thousands of people have lost their homes to the banks and thousands more will. Millions have lost their jobs and may never find work again; the real unemployment rate–that is, if you count people so discouraged that they have given up the job search, and those who can only find part-time work–is a Depression-level 22.5% Thousands of teachers and other government employees are being laid off and many more will be as the disaster unfolds. The voices that are already calling for gutting or cutting Social Security and Medicare will become a swelling chorus as soon as the mid-term elections are over. Throughout Europe governments are gutting the social programs that have been in place in some countries since WWII and in others since the 1880s. The rulers created this crisis to strip the working class of the protections it had gained and to reinforce raw elite power. The disaster is a strategy in the class war.

    But weren’t these bailouts and the consequent austerity programs necessary? The answer is no. The gigantic bailouts were only necessary, explains John Hussman, President of Hussman Investment Trust, because Bernanke and Geithner and their backers in Congress chose to protect the bondholders of the “too big to fail” institutions rather than the public. The usual—and legally required—way of dealing with failed banks is to fire and replace their management, use their shareholders’ and bondholders’ capital to correct their balance sheet, and sell the bank’s good debts to a solvent institution. This is the method used recently in the case of Washington Mutual, the largest bank failure in U.S. history, and hundreds of other cases. Neither depositors nor taxpayers lose a penny in this process. Hussman points out that the bonds backing the “TBTF” banks in question represent more than enough capital to restructure the bank balance sheets and discharge the toxic debt.

    The Federal Reserve Bank–the institution that controls our money supply and determines so much of our financial fate–is a private, profit-seeking institution owned by its twelve member banks. Most Americans are unaware of this fact. The Fed is not owned or controlled by the American people. Rather it owns and controls us. The Federal Reserve, backed up by Congress and the Bush and Obama administrations, has put us into a debt hole so deep we will never be able to climb out without impoverishing ourselves and our children. Inside Job never gives us this crucial bit of information: that the decisions of the Federal Reserve are the decisions of a private business looking out for the interests of the banking and corporate class it represents.

    The film offers Rep. Barney Frank, Chair of the House Financial Services Committee, as a voice of reason, when he is in fact one of the enablers of the bankers’ crimes. Frank steered the TARP bill through the House. He is co-sponsor of the Frank-Dodd Financial Reform Bill, which provides a mere show of reform so that the games can continue. Former Fed Chair Paul Volker—who imposed 21% interest rates during the Carter regime to “zap labor”–and billionaire George Soros are part of the rogue’s gallery of commentators offering words of wisdom in the film.

    The film doesn’t quite come out and say, “More regulation would solve the problems that created this crisis,” but it doesn’t offer anything more than regulation as the solution. Re-regulation is obviously inadequate:

    •Regulations–as we have just seen–can be repealed or left unenforced.
    •The criminals who dominate the industry and their allies in Congress and the White House are still in charge. How could one possibly believe that effective regulations could be imposed without first defeating these powerful forces?

    If the film reported the real $24 trillion extent of the bailouts and showed the “disaster capitalism” strategy behind the crisis, it would be perfectly clear that the problem can only be solved with a revolution. Since Inside Job minimizes the extent of the problem and diverts attention from the forces and purpose behind the disaster, of course it is not going to propose a revolutionary solution. But the fact of the matter is, if we are to have a promising future, the stranglehold of Wall Street and the Masters of Great Wealth on our society must be broken.

      1. Anonymous Jones

        I agree. Great comment by Stratman.

        The movie was slick and perhaps a good start, but when people start to think it’s an end of the investigation into the extent of the corruption, its existence becomes counterproductive in my opinion.

        This is not to diminish how great Yves’ post was. I got a good shredding and a Poincare shout-out. It’s gonna be a good day!

    1. Mickey Marzick in Akron, Ohio

      Well said!

      It wasn’t the failure of neoliberal supply-side economics but rather its overwhelming success that brought US to this point. And it was by design – not by accident! The financial collapse’s portrayal as a failure and an accident are the real inside job…

    2. Francois T

      The only media outlet I know that would have the cojones to do a real pull-no-punches jack-rabbit-ate-mi documentary along the themes outlined by Stratman is Al-Jazeera English.

      That should tell you everything you need to know about the decrepitude of the US media.

  15. MRW

    Klein should stick to kung pao beef, his other job at the Washington Post, according to his bio. (Is that how the WaPo is organized? “Hey, Klein, you get the Fs. Food and Finance.”)

  16. catpal

    very few writers of the 2000s Economic Meltdown/Depression point to the Total Corruption of the ideology of mostly Republicans via the Bush’s SEC guy Cox and his “Agency’s ’04 Rule Let Banks Pile Up New Debt” – https://www.nytimes.com/2008/10/03/business/03sec.html —- you mean that allowing Banks to leverage their Debt to 40X their cash reserves had nothing to do with the bank crashes? sure. Ezra needs to do a little more research.

    So why don’t other (other than nakedcapitalism and a few others) – the so-called writers of economic news – tell the Truth about the Planned Purposeful Criminal Theft of US Taxpayer $$$$ by the Bush Admin, Chris Cox, Hank Paulson, the Federal Reserve and Greedy Banksters.

    It was planned purposely for the Bush years.

    1. Mike the Mad Biologist

      DeLong’s point #3 (things we had to know) is “That the housing bubble would lead to a collapse of mortgage underwriting standards” I think it’s the other way around. Low interest rates led to a dearth of relatively high-yield AAA securities. Into the breech stepped the alchemists.

      Not sure DeLong’s the guy I would want for the counter-argument.

    2. Yves Smith Post author

      DeLong identifies himself as a Rubinite. I don’t consider that position to be leftist, I consider that to be corpocracy. And Klein may call himself a leftist, but his role is to defend Democratic party orthodoxy, no matter how ridiculous it is. That’s why what he writes about health care is so questionable, he engages in tortured defenses of the clearly bad aspects of the Obama health care plan (as in most of them) with what appears to be a straight face. Since Obama is center-right, I don’t consider Klein’s position to be leftist either, just center right with some leftist decoration to distract everyone.

  17. Brett

    Yves — I’ve never thought about how the big banks do need a backstop and how they are practically forced to be protected by a giant central bank. But when you think about it, that’s absolutely true. These banks live on liquidity, and the Fed (or ECB) is the one providing it, and the security of that safety net for the rich is what allows them to house deposits in the billions of dollars. Major players would be forced to diversify their holdings more if the big banks weren’t backstopped by the Fed.

  18. Mike the Mad Biologist

    One (other) thing Klein is confused about is the concept of corruption. While the word has come to mean “Indicted, convicted, and not overturned on appeal”, as you note, the “I’ll be gone, you’ll be gone” mentality is not necessarily illegal (although it could help foster illegality). Short-sighted, irresponsible, and foolish, obviously. It is, however, a sign of corruption, in this case, caused by greed.

  19. Anonymous Comment

    Thanks for digging into this article piece by piece. I was kind of shocked by it really. Since Michael Lewis pretty much sums up the source of the problems on Wall St. as : boys will be boys distracted by boooooobs, I think his opinions on how this all happened can pretty much be discounted as non-serious. Therefore, sadly, so can Ezra Klein’s if he considers Lewis to be the bottom line expert who would have caught the truth if it were in fact knowable – therefore it was not knowable. [???]

    Some people, as you so clearly point out, benefit from not knowing, especially if their not-knowing further supports earlier stupid [greedy?] statements they have made. Which is a self-fulfilling circular stupidity-fest which Klein seems to not notice he is partaking in. Sad.

  20. Susan

    The post WW2 effort to free up capital so it could roam the earth doing good deeds seems to have been incorrect. Capital now wants to be tethered to strong central banks? Why can’t it manage on its own? Did they all get the “variable expressing correlation wrong?” Gotta say again, I don’t want to backstop any of these rogues with my tax dollars. Nor do I want to contribute to a new global regulatory regime which can tap into the Fed. (Even tho’ we all know this is what is going on as we type.) And also thank you David Stratman, whoever you are.

  21. ECONOMISTA NON GRATA

    At this point in time, it’s all irrelevant…. The “Faustian Bargain” was collectively executed and it’s time for “everyone” to pay…. And pay we will….!

  22. fresno dan

    “One can say a lot of bad things about Larry Summers, but no one would call him a fool,….”

    Honestly, I would like to know what theory, writings or policies Summers has advocated that people find so brilliant. I remember when Greenspan was called “Maestro” – is everybody saying your smart a good indicator of being smart?

    Summers:”[Observers] believe that it would actually make us less stable, because the individual banks would be less diversified and, therefore, at greater risk of failing, because they would haven’t profits in one area to turn to when a different area got in trouble. And most observers believe that dealing with the simultaneous failure of many — many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.”

    It appears to me that Summers thought (and still does) that reform of the financial system would cause more problems than not reforming banks. Before the crisis, I would have agreed – but at some point reality has to interject, and the theory of market has to collide with the reality of the market.

    I’ve read that his running of the Harvard endowement was a diasaster.

    So what has this guy written, or advocated, or accomplised that is so brillient?

    1. reslez

      Despite all the evidence to the contrary. Larry Summers may well be a very intelligent man. His reputation hasn’t suffered from his monumental failures because he’s wrong for all the right reasons. He’s part of the club.

      He might be the smartest person in the room at those cocktail parties filled with terribly wrong, terribly oblivious sociopaths.

  23. Hugh

    Kleptocracy needs facilitator’s (politicians, regulators, the judiciary), legitimizers (academics, centers, thinktanks), and propagandists (the media).

    The propagandists are also crucial to the class war that is being waged. The primary weapon of class war is distraction. Looters, a tiny segment of the population, could not operate in the face of widespread public awareness. So the key is to keep the public’s attention anywhere but on them, and this is what our journalists/media do. Their activities can take the form of focusing attention on the latest missing white girl or celebrity break up or meltdown. It can be setting one group against another: the young against the old, private sector employees against public sector ones. Or it can create external threats, real or imagined, to occupy the public’s attention: Moslems, terrorists, illegal immigrants, brown people generally. And it can be obfuscation and noise, the generation of multiple counter-narratives: hoocoudanode, TBTF, the real problem is the debt or entitlements or deficits, conflicts between Democrats and Republicans reflect real differences, the health of a nation is measured by its GDP or the Dow Jones or keeping its banks afloat.

    Ezra Klein is part of this process. He’s not a progressive or liberal. He’s a propagandist. We are told that he is a liberal and that, given his position at the Post, that he speaks for liberals. But he doesn’t. He is a soldier of kleptocracy, bought and paid for, doing the bidding of his masters.

    1. Foppe

      I disagree. Klein does speak for ‘liberals’, since everyone to his left is branded taboo by the MSM and never interviewed. I’m not sure much can be gained by hoping to regain the title ‘liberal’ for a ‘true’ socially left-of-middle group of people. Basically, what you need is to make liberal sound and feel to be synonymous to Friedmanite, and find some new term to identify yourself with.

      1. Hugh

        I and others make the distinction between liberals and Establishment liberals. I personally prefer the term progressive to liberal. Liberalism is too tightly bound up with capitalism for me to feel comfortable with it, especially in light of capitalism’s current and massive failures. There is also a distinction made between progressives and faux-progressives. So we might call Klein an Establishment liberal or a faux-progressive, but to do so misses the point that he is primarily a propagandist. How he is labeled has more to do with his target audience than who and what he is.

  24. ezra abrams

    what a said blog piece
    1st of all, you have the sin of progressives: instead of spending time telling us what to do ( a positive program) you spend all your time attacking the right (I mean, how difficult is it to make fun of G Mankiw?) or engaging in these petty internecine wars

    2nd, your own logic ain’t that great; your 5th paragraph (the 1st to have any substance) has a huge error: Klein doesn’t say that blaming corruption is inside jobs only flaw; he says it is a flaw…
    your piece goes down hill from there

    but, given how crappy the font is on your blog, why should I expect clear thinking – if you can’t be bothered to put up a blog with a decent font, why would I expect you to bother to think?

    1. YankeeFrank

      I happen to like the NC font. The no nonsense and easy to read qualities of the NC font mirror the content of the blog itself which is without equal among financial/political blogs the world over: not just in terms of the depth and flawless precision of the arguments, but the accuracy of its moral compass as well.

      In the end, though, judgments as to the quality of a font are rather subjective. What font do you prefer to fail in ezra?

  25. psychohistorian

    Ezra Klein is one of the many propaganda master under employ to obfuscate and otherwise mis-direct the masses.

    We only have Yves and a few others but they are doing a marvelous job…..if only enough start paying attention….

    Thanks Yves!

  26. MIWill


    In Ezra’s Michael Lewis enshrine
    He leaves his integrity supine
    We must look askance
    At his telling of finance
    Should he even note the time, we de-Klein

  27. kabosh

    The timing of this review of “Age of Greed” could not be more perfect:
    “You get the picture. The great financial crisis of 2008–2009, whose consequences still blight our economy, is sometimes portrayed as a ‘black swan’ or a ‘100-year flood’—that is, as an extraordinary event that nobody could have predicted. But it was, in fact, just the most recent installment in a recurrent pattern of financial overreach, taxpayer bailout, and subsequent Wall Street ingratitude. And all indications are that the pattern is set to continue.” –http://www.nybooks.com/articles/archives/2011/jul/14/busts-keep-getting-bigger-why/?pagination=false

  28. EoH

    Mr. Ezra Klein has been fully Washington Pooped. He now makes David Brooks appear informed and objective.

  29. Jim

    Amazing…

    “What’s remarkable about the financial crisis isn’t just how many people got it wrong, but how many people who got it wrong had an incentive to get it right.”

    He could learn so much had he worked even for one year at an i-bank.

  30. Adrian Haiwei

    Klein is good for a modern journalist.

    But the standard modern journalist is a smarmy arrogant dumbfuck prick with the attention span of a kitten, who can be spun like a top by any swaggering con man that struts through the door.

    So go figure Klein is uncomfortable about Inside Job. How many smarmy arrogant dumbfuck pricks do you know who like it when people point out how stupid they really are?

    Like the rest of them, he’ll gradually grow increasingly resentful of smarter people calling out his mistakes and idiocy. In 30 years, he’ll be the new David Broder (assuming civil society hasn’t collapsed).

  31. darms

    Yves – you had me at “osculectomy”. Wow, that’s priceless. I submitted it to the Urban Dictionary…

    1. Rex

      Osculectomy was a gem in the piece, but do note that Yves seemed to credit the term to, “former investment banker and New York Observer columnist Michael Thomas.”

  32. DavidE

    In a steady real estate market, liar loans are more risky than other loans but the risk could be built into the pricing. Traditionally, liar loans required a higher downpayment too. Basically, the logic behind the liar loan is that regardless of the ability of the debtor to pay, you have the collateral and if you got a higher down payment, the risk to the bank was reduced.

    So I don’t see liar loans as totally fraudulent. Today, even people who have worked 10 to 20 years at a company, could lose their job within a few years of the mortgage.

    I think the problem that the mortgage companies didn’t account for (really the Wall Street firms that packaged the securities) is the bubble. Bubbles are devastating for lenders because the lender makes a little more on the upswing (fewer foreclosures) but gets destroyed on the downswing. One rule you can’t forget is that what goes up can come down and that is what happenned.

    Now this is not to say fraud didn’t occur. In 2006, both Merrill and Lehman started to “invest” in their own mortgages. And they made big bonus payments in 2006 when they knew that subprime was collapsing and Lehman kept faking profits and making bonus payments through 2007.

    Regarding Lehman, how could anyone possibly believe that a major mortgage lender went through 2007 unscathed. So Fuld and his crew are certainly guilty of covering up big losses in 2006 and 2007 but I have my doubts that they anticipated the crash.

    1. Rex

      I think you are taking far too simplistic a view, as has been sold to the masses to point the blame toward the bottom end of the food chain.

      The liar loans certainly played a part, but they were being generated as mere stuffing for the big deals that were cooked at the top. The maestros built complicated bets, scams and counter-scams so they could skim off the cream as the mostly-crap passed by. They blew a lot of the bubble on purpose. They had to work hard and fast because they knew the coach was really a pumpkin and the party could only last so long.

      Or it least that’s my metaphorical explanation as it made my head hurt when I tried to comprehend the full scope of the massive con game we all just lived through.

      If you haven’t read Yves’ book Econned, I highly recommend you do. Even if, like me, you don’t follow all the details, it tells very well who did what and to whom and why. See if it makes your head hurt too.

  33. Phichibe

    I have to say: I like Klein. I also like Yves. The late Tanta of Calculated Risk had contempt for Gretchen Morgenstern and I liked them both. It’s possible.

    That said, I think Yves’ position here is much the more convincing. I particularly distrust Michael Lewis, and have for decades; he’s a dilettante with a questionable sense of morality, never more on display than in a piece he wrote some years back defending the notion that there is nothing wrong with insider trading. As for his argument that Wall Street wouldn’t have blown up had they not abandoned partnerships, that’s simply ludicrous; LTCM was a partnership, and look where it ended up.

    Concerning allegations of ad hominem arguments, I didn’t detect any whatsoever. As I said, I have read Klein before and not thought ill of him (I mean, come on, Paul Krugman cites him on occasion) and when I started to read Yves’ post I was looking to see if her arguments were personal but I have to say that every point she made was grounded in fact, not in pique. I hadn’t read Klein’s piece in question before reading Yves’ critique of it, but I did afterwords and while I think there was *some* merit in Klein’s analysis (in that modern economics is fundamentally broken), I think Yves’ takedown of his other points was compelling. It is a pleasure to read a really well reasoned, pull-no-punches analysis, and that is what Yves gave us.

    As for Stratman’s post, I have to disagree with him on several crucial points: what happened in 2008 was not a deliberate plot by nefarious forces to destroy the welfare state. While the nefarious forces certainly have seized the opportunity to attempt exactly that, it is beyond rationality to suppose that anyone would deliberately ignite a crisis of this magnitude. What I think *did* happen was that a number of players thought the bubble was going to crash (especially Magnetar, as Yves’ excellent reporting uncovered, and Paulson) and positioned themselves with naked CDSs to exploit the carnage. Goldman set off the inferno with their radically reduced marks on various CDOs in early 2007, and collected handsomely from insuring their neighbors’ burning houses. I do, however, agree with Stratman that the Repugs did everything they could to cripple regulation of Wall Street and the SEC; sadly, they had no shortage of Democratic accomplices.

    The scariest thing about the whole sorry mess is that we don’t even know the scariest thing yet. There are dragons lurking in the deeps of the financial system, and those who steered us into their den are still at the helm. That, however, is a post for another time.

    As for the criticism of the web site font, if that’s the best the writer can offer, I doubt Yves’ will cry herself to sleep. Besides, what is wrong with Helvetica?

    Phichibe

    1. JTFaraday

      When you consider that Simon Johnson’s “Silent Coup” predicted that the financial crisis would be used to attack the welfare state, as had been done countless times abroad, I don’t think Stratman’s analysis is so off base– even if it has Richard Hofstadter quoting propagandists reaching for their smelling salts all over Manhattan and DC.

      http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

      You yourself suggest that Goldman Sachs *deliberately* lit the conflagration that became the panic from which it systematically positioned itself to profit:

      “Goldman set off the inferno with their radically reduced marks on various CDOs in early 2007, and collected handsomely from insuring their neighbors’ burning houses.”

      Not only was this crisis a conspiracy, but it’s a conspiracy against the state. Of course the conspiracy’s paid mouthpieces in the press will pretend against all evidence that no one knew anything so it couldn’t possibly be a conspiracy. And, far from conspiring themselves, they were just collecting a paycheck the way Goldman Sachs employees collected their bonus and the way politicians collected their campaign funds.

      Put away your smelling salts take full measure of the crime.

    2. hermanas

      @Phichibe,
      “As for Stratman’s post, I have to disagree with him… what happened in 2008 was not a deliberate plot by nefarious forces to destroy the welfare state…, it is beyond rationality .. that anyone would deliberately ignite a crisis of this magnitude.”
      Read Stratman again. And I suggest it began earlier, think Regan, was Nixon a crook? We’ll all be surprised when they drone us.

  34. annie

    for many years before the crash i was reading people who predicted it–making them ‘wizards’ in delong’s view–like bill fleckenstein, jim grant, marc faber, fred hickey, to name a few. thankfully, they positioned their readers for the crisis. fleckenstein wrote a book about greenspan, whom he’d been reviling for years.

    ezra klein and matt yglesias, for example, were good to read in the bush years, but they know nothing about economics. neither do most economists, as we’ve found out, so they do not have masters to teach them.

    i quit reading delong around 2004 when i realized he adored greenspan. try reading his review of greenspan’s autobiography in the l.a.times book review just months before the crash. (on his chart, linked to above, he says he failed at (4); he also failed at 1,2,3….and counting.)

    krugman says he called the housing bubble and gives a couple of old links. but if krugman really had understood what was coming, does anyone doubt that he’d have been putting this knowledge in our faces every day. i am enormously grateful to krugman for all he did in the bush years but he cannot say he was on top of the economy’s looming disaster.

    i’m grateful to yves for taking klein to task. it might shake his certainty. would be good if klein and those like him–young leftists–knew where to go for real information, but again, the media isn’t offering it–though i think gretchen morgenson has done a good job, and now louise story. ironically, it’s primarily from certain professional investors (listed above) that one can get educated. and some of them, i’m sad to say, do not have progressive politics. or barry ritholtz is a start. naked capitalism. the baseline scenario.

    1. and i

      Klein is not a leftist, he’s a propagandist. He simply answered a want ad for a left appearing corporate shill, and so here we are.

    2. and I

      … and Yglesias is desperately trying to get a similar gig. He’ll be such a good little shill, just give him a real column like Klein and Krugman got. Pleeeeze?

    3. liberal

      i quit reading delong around 2004 when i realized he adored greenspan.

      That, plus the fact he’s a real prick and will delete comments for all the wrong reasons.

  35. michael

    “One of the reasons the crisis has been so ‘difficult to understand’ is that the government and banking elites have been taking extraordinary efforts to obscure the truth.”

    Yves, sorry to say so but you seem to be stuck in a fallacy as well – it’s about *complexity*.

    On your above quote, did you ever ask yourself why they were successful in obscuring the truth?
    Do you think pressure of public opinion or lack thereof might have to do something with it? And how many people of the public understand what’s going on?

    And if Central Banks would impose what amounted to a global regulatory regime on the biggest banks at any time, it would not solve anything, because the tendency would automatically be more, and more complex, regulation. So the control would only be transferred to a small number, but different group, of individuals. Not the brightest prospects for a real, long term solution.

    You seem to be still trying to solve problems caused by overcomplexity, and the inability of the general populace to grasp it and therefore form a founded opinion on it, through more or different complexity.
    Not going to work.

    Btw I am NOT in any way saying Ezra’s piece has it right, or your critique is baseless. Keep hitting them hard, just reassess your proposed “solutions.” And kudos to the writer of “Cracking the Credit Market Code”, had seen it before.
    BR

  36. Mike Folsom

    Your 2nd paragraph begins by saying:
    “Since being off base is a major part of Klein’s brand…”

    Thank you! I am so sick of this clown being foisted on us as some sort of liberal sage I want to hurl at the mention of his name. He regularly does more damage to progressive/liberal causes than the entire RNC. I wish HuffPo would forget he exists.

  37. Renee Dumas

    Klein is either a liar or dumb as hell.

    Everyone involved in this shell game knew that a shock to the housing market would fuck us all over. They also knew there was a housing bubble. They just did what they do best: they got theirs.

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