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Satyajit Das: Mr. Smith Goes to Leaves Wall Street

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By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)

Barclays Bank’s admission that they “fixed” money markets rates and JP Morgan’s admission that so called hedges were “incorrect” are merely symptoms of a deeply compromised global financial system. Significantly, even The Economist, sympathetic to capitalism and finance generally, resorted to the word “banksters”. Something is rotten it the state of global finance.

In his 1933 inauguration address, Franklin Delano Roosevelt attacked the “callow and selfish wrongdoing” in banking and business. Roosevelt told the crowd of over 100,000 that attended that the “rulers of the exchange of mankind’s goods have failed” and that “unscrupulous money changers stand indicted in the court of public opinion”. Some 80 years later, the money changers have not “fled their high seats in the temple of our civilisation”. “Ancient truths” have not been restored to that temple. Something corrupt and rotten continues to fester at the heart of high finance, economic life and, indirectly, modern society.

Mr. Smith Speaks….

On 14 April 2012, former Goldman Sachs Executive Director Greg Smith recorded a very public and sensational exit interview in the opinion pages of the New York Times.

The letter criticised “toxic and destructive” practices and cultures within Goldman Sachs, one of the world’s largest, most important and influential investment banks. The criticism focused on practices that exploited clients and put the interests of the bank first. It alleged a culture that was focused on getting clients to invest in securities or products that Goldman was interested in getting rid off. The letter highlighted the use of complexity to confuse clients and the focus on highly profitable and (sometimes) unsophisticated clients who did not fully understand the risks of the transactions that they were being encouraged to enter into.

The most-noteworthy farewell speech since the film Jerry Maguire has been parsed as an expose of the alleged practices of his former employer. It is more subtle, highlighting a deeply flawed financial system as well as the poisonous and brutal culture of modern financial institutions.

Unfortunately, it is doubtful that it will follow the same trajectory as Frank Capra’s 1938 film Mr. Smith Goes to Washington, about a single honest man’s effect on American politics.

Questioning Mr. Smith….

Following publication, most press coverage focused on the use by Goldman Sachs staff of the term “Muppets” to describe clients. In reality, the term is mild. In his book about his experiences at Morgan Stanley, former derivative salesman Frank Partnoy captured the relationship between bankers and their clients more colourfully: “The sell side [banks] hang up and say ‘f*** you’! The buy side [clients] say ‘f*** you!’ and then hang up.”

Mr. Smith’s primary concern -the failure of Goldman Sachs to give priority to the interest of its clients- appears naive. He ignored the firm’s history, perhaps choosing to believe the statement of Goldman Sachs CEO Lloyd Blankfein that the firm does “God’s work”.

After the 1929 crash, a US Senate hearing investigated the Goldman Sachs Trading Corporation, a listed investment trust floated by the firm to its clients:

Senator Couzens At what price [was it sold to the public]?
Mr Sachs $104 …
Senator Couzens And what is the price of the stock now?
Mr Sachs Approximately 1¾.

In June 1970, when Penn Central Transportation Company, the nation’s largest railroad, defaulted on its debt, Goldman Sachs was found to have sold the company’s debt to clients at face value when aware that the borrower’s financial position was deteriorating. The investment bank forced the company to buy back its own holding of Penn Central debt. None of Goldman Sachs’ customers were made a similar offer.

In 2010, a Senate investigation and SEC action highlighted suspect practices surrounding the sale of mortgage backed securities, known as the ABACUS and TIMBERWOLF, to “widows and orphans”. The firm paid a record $550 million fine to the US Securities and Exchange Commission (“SEC”) to settle the allegations. In April 2012, Goldman Sachs paid $22 million to the SEC to settle charges that it allowed select clients to receive non-public information about stocks – a practice known as “huddles” or “Asymmetric Service Initiative”.

In both transactions, Goldman Sachs appeared to display a familiar disregard for client interests.

Mr. Smith appears not to have done proper due diligence on his employer. It is also surprising that it took him some 12 years to identify the problems of Goldman Sachs.

Mr. Smith’s personal motivation –stated as “a wake-up call to the board of directors”- is unclear.

The timing of his resignation in March 2012 was presumably to ensure that his bonus check cleared. It suggests that Mr. Smith did not dislike the firm or its practices enough to give the money back.

The opinion piece reads like a job application. It recites Mr’s Smith’s personal credentials – Stanford University (on a scholarship), a Rhodes Scholar finalist, a bronze medal for table tennis at the Maccabiah Games in Israel. It also recites his professional achievements – advising clients with total assets of more than $1 trillion including two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. He fails to mention that his outburst may contravene non-disclosure and non-disparagement provisions in his employment contract.

With a book deal in the works, lucrative speaking opportunities and even consulting to his old firm to address identified culture issues, Mr. Smith’s cri du coeur could be seen as an interesting career strategy at a time when anti-Wall Street sentiment is high and financial institutions are shrinking.

An Interesting Conflict…..

Whatever Mr. Smith’s motivation, the accusations raise real issues, just not the ones being discussed. The central problem is the in-built conflict of interest in the current banking system between acting in the interest of a client and trading on the bank’s own account.

In the 1990s, investment banking shifted from a client focused business (providing advice, underwriting securities and executing purchase and sales of financial instruments) to a business trading on the firm’s own account using shareholder capital.

The change was driven by the growth in size and capital resources of investment banks, as they evolved from private partnerships into public companies or units of large commercial banks. It was also driven by shrinking margins on traditional activities, such as lower commissions and underwriting fees, and the need for new sources of revenue to meet investor return expectations.

Investment banks feared that the separation of client business and trading with its own capital would limit their ability to compete. Under CEO Lloyd Blankfein, Goldman Sachs embraced the conflict, emphasizing intelligence from trading with clients and other banks to place bets with its own money.

Major investment banks sought to become “flow monsters”, capturing a dominant proportion of trading volumes to assist their proprietary activities. To achieve this, banks used cross subsidies to attract certain clients. Execution or market-making and credit facilities to finance large hedge funds that were a source of significant trading volumes were provided at subsidised prices. In an insidious process, this created pressure to increase trading volumes even further as well as increasing reliance on proprietary revenues to meet shareholder return targets.

The best research was channelled to support proprietary trading. Client research increasingly became devalued, evolving into mere puffery – a sales aid for selling products or the firm’s inventory to the clients. Products were designed and sold to assist investment bank’s proprietary traders to take positions, sometimes at the expense of clients unaware of the risks.

The shift was cultural as well as economic. In her 1999 book Goldman Sachs: The Culture of Success, Lisa Endlich, a former Goldman Sach employee on the trading side, makes snide comments about the “feeble and hidebound” traditional investment banking culture, with its focus on the client. The trader culture, which Endlich celebrates, involves a transactional business model which is isolated from clients and highly results oriented. Deals and profits dominate at the expense of client interests and relationships, a practice known as “scorched earth banking”.

The success of the trading model can be seen from the fact that the path to the executive suite of an investment bank these days originates in the trading room. Both current Goldman CEO Lloyd Blankfein and his deputy Gary Cohn traded metals earlier in their banking careers.

Regulatory Complicity…

Implemented in response to the 1929 stock market crash and the collapse of the banking system, the Glass-Steagall Act of 1933 sought to prevent some of these conflicts of interest, separating commercial banking from investment banking and limiting speculation. Removal of these regulations in the 1990s was crucial in allowing the development of the current banking model.

In the early 1990s derivative scandals, such as Procter and Gamble, highlighted the problem. The Internet stock boom exposed the practices of leading investment banks in relation to stock sales and self serving research. But despite numerous enquiries, the problem was not addressed.

In 2002, America’s Sarbanes-Oxley legislation failed to address the real issue – the inherent conflict of interest inherent in integrated financial supermarkets combining commercial and investment banks.

In fact, legislators are rolling back some of the Sarbanes-Oxley provisions. The 2012 Jump-start Our Business Start-ups Act, shortened to JOBS, seeks to make it easier for companies to raise capital. The bill would end the rule that investment banking analysts could not assist in marketing new issues of shares for new offerings, except those involving companies with sales of over $1 billion. Investment banks, underwriting the issues, would not be prevented from making sales pitches or publishing research on a company during the initial public offering. The liability of investments banks will also be weakened.

New regulations, introduced following the financial crisis, do not also deal adequately with the problem. Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the “Volcker rule”, seeks to restrict the ability of regulated entities to undertake proprietary trading, indirectly regulating the identified conflict of interest. The efforts of bank lobbyists have ensured that the final rule will be considerably weakened and riddled with exemptions. One lawyer told banks that “given so much of proprietary trading has a client nexus to it, I’ll be embarrassed if I don’t manage to exempt all your activities from the rule”.

In the UK, the Vickers Report considered separation of certain activities of banks. In the end, the commission did not recommend radical reforms, proposing instead to force banks to ring fence UK retail operations rather than split along different business lines.

Unless the central conflict of interest is dealt with it, banks will always be tempted to give their own proprietary interests priority to boost earning. In reality, the only way to deal with this is by separation of client and proprietary activities.

Cruel Finance…

The inherent conflicts of interest and a remuneration system based around short term revenues and bonuses create a toxic ecology within banking.

Financiers deride the real world and real people who move far too slowly. Only bankers know how to get things done. In her book Liquidated, ethnographer Karen Ho cites an interviewee: “We’ve made everyone smarter. We know much more…we’re the grease that makes things turn more efficiently.” For bankers, this self-belief in their role and sense of superiority over clients justifies the ruthless and exploitative practices now embedded within finance.

In the 1970s, Pierre Bourdieu, a French sociologist and anthropologist, introduced the concept of habitus -the idea that each society and culture orders its world sub-consciously according to a cognitive framework based on its experiences. In the 16th century, the Spanish conquistadors who conquered the New World brought the ambitions, prejudices, attitudes and values of their culture. Their success shaped their habitus. Achievements were validated with riches, rank and power. Failures brought disease and death, mollified by the consolations of faith and the afterlife.

The financial elite now undertake similar conquest and plunder with scientific and economic pretensions. The Masters of Universe strut through the City of London, Wall Street, the Bahnofstrasse, Finanzplatz Deutschland, Raffles Place and Tokyo’s Marunouchi like god but in a better suit.

In his books and essays, sociologist Zygmunt Bauman uses the metaphors of liquid and solid modernity to capture the shift from a society of producers to a society of consumers. Security gives way to increased freedom to purchase, to consume and to enjoy life. In liquid modernity, social forms and institutions no longer have time to solidify into accepted frames of reference for human actions and long-term plans. Individuals have to be flexible and adaptable, pursuing available opportunities.

Liquid modernity requires calculation of likely gains and losses of acting (or failing to act) under endemic uncertainty. The readiness to discard extends to people who we do not recognise as fellow human beings – migrant workers, immigrants, terrorist suspects or, in banking, clients: “It seems all things, born or made, human or not, are until-further-notice and dispensable.”

Karen Ho in Liquidated documented the brutal culture of modern banking. Hired as the best and brightest expecting royal treatment, graduates work like indentured slaves for up to 140 hours a week. In a brutal world without job security and where performance is constantly assessed, bankers survive by trading things or cutting deals. Ho’s title evokes Bauman’s idea of liquid modernity. Bankers make assets liquid or tradable. As highly liquid assets themselves that could be easily liquidated, they live in constant fear.

For bankers, the environment is challenging, where they must adapt or die. There is an old Wall Street saying: “Never tell anyone on Wall Street your problems. Some don’t care. Most are glad you have them.” In their work, John Lennon’s song Working Class Hero provides the survival script: “There’s room at the top they are telling you still/ But first you must learn how to smile as you kill/ If you want to be like the folks on the hill.”

These forces created a culture where narrow, short-term self-interest dominates. The culture drives creation and sales of products of no intrinsic value to people who do not understand them. Fear of being liquidated eliminates misgivings about profitable transactions that might result in enormous pain for others.

Bernard Madoff preyed upon unwitting members of his religious and ethnic communities, enlisting leading figures to help promote fraudulent investments as legitimate. Pink Floyd had sung about it in Dogs: “You have to be trusted by the people that you lie to/ So that when they turn their backs on you/ You get the chance to put the knife in.”

Financial Nihilism…

In a famous series of experiments delivering electric shocks to people, Stanley Milligram found that: “Ordinary people can become agents in a terrible destructive process…. Even when the destructive effects of their work becomes patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.”

In the last 20 years, bankers have become willing agents in a highly destructive process, even when they were aware of the consequences of the action. They are unable or unwilling to resist the peer pressures and ultimately the lure of wealth. It is as Marcel Proust wrote in A la Recherche du Temps Perdu: “… indifference to the sufferings one causes, an indifference which whatever other names one may give to it is the permanent form of cruelty.”

Greg Smith’s statement does not merely point to questionable behaviours at the investment bank, once tagged by Rolling Stones journalist Matt Taibbi as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. As recent events highlight again, the alleged practices are widespread throughout the industry, where competitors ironically see Goldman Sachs as a role model. They are also the result of a deeply flawed and dangerous business model and culture which is poorly understood and rarely challenged.

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41 comments

  1. Gerard Pierce

    One thing left out of most descriptions of the Milgram experiments was the “after experiment” interviews with the people who had been persuaded to administer what they thought were 400V shocks was the fact that many of the subjects knew what they were doing was wrong. They hated it, but they felt compelled to obey orders. The experiments were set up to establish the “authority” of the guy in the white lab coat with the clipboard.

    Interestingly, a panel of “academic experts” reviewed the experiment and declared that it was probably “immoral” because it could shock the subjects of the experiment to find out what they were capable of. It might make them feel bad about themselves. No researcher today could get approval for similar kinds of followup experiments that might let us know who we really are as human beings.

    The most hopeful of the post experiment interviews involved a twenty year old woman, a German exchange student, a biology major. Her response upon the initial description of the experiment was simply “This is not right and I will not cooperate”. The year was around 1960. At least some people had learned a lesson.

    1. Maju

      Has the Milgram experiment been independently replicated in the Toyotist, post-Punk society we live in? I think it is proper of the Fordist society that existed until 1968 or the 1970s (in the Capitalist Center, in the Periphery it may have different timing).

      I suspect that today people would be less eager to comply with orders just because they are orders: hierarchies are not at all what they used to be. However in a peer-pressure scenario…

      1. Otter

        Abu Ghraib.

        Almost any demo/manif/occupy in a town whose police force is not numerous enough to field citizen-control cohort composed only of bullies.

        SWAT teams are selected from those who have large bodies, and low empathy.

        Investment banks.

        1. aletheia33

          http://www.ted.com/talks/lang/en/philip_zimbardo_on_the_psychology_of_evil.html

          sociologist philip zimbardo conducted the “notorious 1971 stanford prison experiment,” which had to be called off. interestingly, it was his wife who perceived how dangerous the experiment had quickly become to the mental balance of all the subjects. in this talk he shows some interesting photos from abu ghraib and speaks about the forces in play there. the authorities well know what conditions will lead ordinary soldiers to go beyond the pale.

          1. Otter

            Thanks for the link!

            I did not know it was his wife, maybe they married later.

            I do know it was a woman. One account said he was a monitor assigned from another faculty.

            Maybe this account is accurate :

            Zimbardo aborted the experiment early when Christina Maslach, a graduate student he was then dating (and later married), objected to the conditions of the prison after she was introduced to the experiment to conduct interviews. Zimbardo noted that, of more than fifty people who had observed the experiment, Maslach was the only one who questioned its morality. After only six days of a planned two weeks’ duration, the Stanford Prison experiment was discontinued.

            http://en.wikipedia.org/wiki/Stanford_Prisoner_Experiment

            Check out who funded the project.

    2. briansays

      sounds much like the rating agencies and the academic economic professionals who sell professional expertise then rationalize

  2. Domino Schwartz

    Mr. Das,

    I’m also interested in the motives behind Smith’s piece. The whole NYT bit smelled like money and made me a bit nauseous. Agreed. Nonetheless I sense a tone in this piece and it’s not the first time I’ve heard it in the writing of those who are healthily angry at the modern state of finance. It’s a certain cattiness that reverberates throughout intellectual circles. I think it’s important to keep in mind the true enemy and focus our energy on that instead of one another, especially those who, however nauseating the process by which they jump ship, nonetheless stand beside us.

    I would love to hear your thoughts on what you the effect on our nation/world would be if the big banking houses were disassembled. For now the banks are large economic actors and as you do so great a job detailing in this piece, much of what makes their significance so unfortunate is the malignant corporate cultures that misaligns incentives and make ghouls of decent men and women. Hopefully a day will come when our team develops the vision and organizational might to rebuild the political economy more substantially. Until then corporate culture matters and however fancifully misguided Smith’s allusion to yesteryear’s golden Goldman culture may be, his call for the restoration–i.e. creation– of that culture strikes a constructive chord. Glass-Steagall et alia can do only so much to limit the bank’s ability to produce instruments capable of bypassing regulations. Bright, ambitious minds will always find ways to break rules. Barring overhaul and building the banking sector anew–which will happen in time but not for awhile–and regulations like GS that work but not in a way capable of generating systemic reform, I think Smith’s call for a cultural revolution among the banks may be naive but is not off the mark.

    1. jake chase

      The solution is very simple: reinstate Glass Steagall. Second, prosecute every investment bank for fraud, send all executives to prison for ten years, liquidate the banks in favor of defrauded clients. Impose a transaction tax that will destroy hedge fund profitability and return markets to their proper function. Outlaw OTC derivatives which are nothing but vehicles for market manipulation.

      Unfortunately, the White House and the entire United States Congress are owned by the investment banks, so none of this will ever happen. This fall we will again have our choice of dublicitous stooges. Whom do you prefer?

  3. psychohistorian

    So I feel compelled to ask why there is not focus on the folks that hire and fire all these sociopathic bankers?

    I don’t want to re-invent Glass-Steagall, I want an end to the global inherited rich based class structure that continues to control all Western Democracy’s economies.

    So when the sh$t hits the fan in the next weeks/months it will be sad to hear all the discussion on the old, tired, never look beyond the bankers, solutions to our problems.

    1. Otter

      “I want an end …”

      The only end is death.

      The desire to somehow make everything right for me and never need to do anything more is exactly the same desire which drives the rentier.

      We not only need Glass-Steagall (2015) tm, but also people to nurture and enforce it. Looking at history, it appears we also need to experience its failure, circumvention, and dismantling.

      We will always have sociopaths and inherited rich, also flunkies willing circumvent and dismantle, not to mention break heads, in return for a small share of the rape and pillage.

  4. No one in particular

    ….. have read only the first half.

    You are not as well-informed about GS as you seem to think. One well-known “secret”, after bonus time, GS boots the worst performers on an annual basis, based on performance reviews, I hear.

    So the timing might – and I do not know, have other reasons.
    Just a thought.

    1. craazyman

      yeah, and who are the “worst performers”?

      the most ethical, least corrupt, most thoughtful and least predatious? (not always, of course, but often enough, probably)

      just a thought.

      having said that, I suspect Mr. Smith got his when the getting was good and got his religion only after he could afford to. Just a theory, anyway. ecce homo.

      and one more rant . . . to term these hand-me-a-lever-and-I’ll-pull-on-it-if-you-tell-me-to morons as the “elite” of anything is a testament to the power of an expensive suit, but that’s about it. they possess no quality what-so-ever beyond the ability to show up for work. Most folks can do that, if they have work to show up for.

  5. bena gyerek

    it’s like aerial bombing. you focus on improving your skills and accuracy. the victims are too far away to think about.

  6. Shizel

    Barbarian Future
    These good looking, intelligent people dress conservative, talk conservative, no matter how they feel, all to take as much money from you as possible. Then they die rich, satiated and guilty. They all have flashbacks they can’t handle, but are willing to live with them. Their customers ( prey ) are nurturing, trusting prey. Such it always has been under the veneer of regulation.

  7. F. Beard

    Bankers aren’t the problem; BANKING is. It’s not a case of a few rotten apples spoiling the rest of the barrel but a rotten barrel spoiling the apples.

    1. damian

      nonsense – they create a natural selection process to hire only those with a propensity for Fraud as the principal business tool who will keep their mouth shut when the hammer comes

      just like the selection process for those in the Nazi SS who could run a concentration camp with precision and total dedication to the objective

      1. skippy

        Banks are just the primary temples – within – a temple complex. How many time have temples been torn down, only to be rebuilt down the road? What is the driving force behind observation.

        Skippy… foundation myths, and how do you grapple with a myth?

  8. rps

    “…the use of complexity to confuse clients and the focus on highly profitable and (sometimes) unsophisticated clients who did not fully understand the risks of the transactions..”

    A foole & his money,
    be soone at debate:
    which after with sorow,
    repents him to late.

    Whatever happened to personal responsibility, or if it’s too good to be true…, and buyer beware? The clients chose high stake risks without doing their homework, and relied on god like entities….governments comprised of inbred ravenous politicians with incestuous Wall St. relationships. Thus the foxes guarding the henhouse (taxpayer trough). These unsophicated investors, like children, chose high stake risks offering fantastic promises of extravagant unearned wealth and a leisurely lifestyle.

    This is the crux of the matter, in the disconnect of unrestrained financiers (talented ponzi men) running/buying governments, and selling casino style gambling of get rich schemes. A very ancient dream of never toiling for your bread sold to the wannabe investors. Thus,the wishful fantasy of eliminating the quaint model of humanity’s labor as the primary component and money as our byproduct for bartering of goods and services.

    “….complexity to confuse clients”

    “It does not require many words to speak the truth.” Chief Joseph, Nez Perce

    1. F. Beard

      “It does not require many words to speak the truth.” Chief Joseph, Nez Perce rps

      When there are many words, transgression is unavoidable, but he who restrains his lips is wise Proverbs 10:19

    2. hermanas

      “It does not require many words to speak the truth.” Chief Joseph, Nez Perce.

    3. Dan Friedman

      The Bankers fraud did not play on any desire on the part of the public for get rich schemes (or the like). The theft was thrust upon victims. Understand fraud and theft. It is not consensual.

    1. LeonovaBalletRusse

      More “just” might be “liquidation at the stake” or “autos da fe.”

      1. F. Beard

        Kill bankers and the Devil will shrug; kill banking and the Devil will howl in helpless rage?

  9. rps

    Goldman Sachs
    JP Morgan
    Citigroup
    Bank Of America
    UBS
    Bank of Scotland
    Deutsche bank……

    Modern day barbarians; Vikings, Saxons, Normans, Huns, Picts,……

    1. Valissa

      That’s exactly how I think of them!

      I really enjoyed this post, esp. the focus on sociology and anthropology which give important context for the current financial trends.

    2. briansays

      more
      gambino
      coleone
      you folks on the east coast will have to help a cali boy with the family names

      1. Valissa

        The difference is that the authorities actually make an effort to bust the crime families.

        Here is one example… Feds Arrest Over 100 In Massive East Coast Mob Takedown http://newyork.cbslocal.com/2011/01/20/feds-arrest-over-100-in-ny-nj-mob-takedown/

        Will we be seeing something similar for the banksters? I think not. A few token banksters will get prosecuted here and there, and a few more will get called to testify before congress (where they will not be seriously grilled) but that’s about it.

        Some info on East Coast crime families…

        East Coast Mafia Families http://www.netplaces.com/mafia/family-ties/east-coast-mafia-families.htm

    1. Susan the other

      You mean posted by Das, as Yves is relentless beyond all other finance blogs. This was hard hitting for Das. He called Smith out for a shill, or a self-serving participant. Das doesn’t mention that not long after Smith went blah blah blah, Blankfein himself arranged an interview with the MSM to speak for GS. He welcomed the interviewer to “our home” meaning the interviewer had come to GS headquarters. Then Blankfein devoted his message to one thing: reassuring stockholders (can you believe this stuff?) that GS was doing just fine. Soon they would be focusing almost exclusively on Africa with a little Silicon Valley thrown in. Good bye Lloyd, and good riddance. May all of your ilk go to Africa.

  10. Hugh

    “deeply flawed and dangerous business model and culture”

    While a step in the right direction for Das, this is still woefully inadequate. Replace “flawed” with “criminal” and you come closer to the truth. Replace “business model and culture” with “financial and political system” and you are the rest of the way there to kleptocracy.

    Das is still trying to justify the system which is looting us, much as Bill Black does by describing bad behavior as widespread but not systemic. As I have said so many times, it is the difference between bad behavior/misdeeds/criminality within an otherwise sound system (so reformable) and the system as criminal enterprise (unreformable, only replaceable). The second is what we actually have. The first is what Das and Black continue to cling to.

    It is like Das wants to keep the current system, just dial back the looting a little. But as many of us have been pointing out for an age around here, the macro consequences of the wealth transfers this looting represents, from worker to rentier, always lead back to the conditions we have now. It is just a matter of math, and I suspect Das is very good at math.

    1. Dan Friedman

      Hugh – yours is the most accurate summation that I have heard after 30 years on Wall Street. Anything else, suffers from the delusion that somehow “Justice will prevail” or “Right is Might” or “Things will get better, or…

      This delusion, while comforting, encourages the continuation of Crimes Against Mankind.

      Fight those rapists, don’t comply and continue this degradation.

      Now, are we clear?

        1. Dan Friedman

          I am certain about the fact that the great majority in the US will not tolerate their enslavement for long. Their family histories all contain one common experience: that of their ancestors fleeing such enslavement. This is only beginning to dawn in most minds as it’s been a dormant memory, papered over by subsequent events not so harsh.

          When the harsh reality dawns, TOGETHER WE WILL FIGHT.

      1. Rcoutme

        As I said in another post, I am amazed at the restraint of the NYC residents in not torching B. Madoff’s apartment building when he was in it.

    2. Newtownian

      Hugh,

      Despite sharing your outrage I also like the tone of Das’s ‘sympathetic’ analyses of the world of finance in both his books – Traders Guns and Money (after the Warren Zevon song?) and Extreme Money. To me he says in a calm fashion “No point in getting mad if you arent going to to something about the problem – so here is how the game works and its not inscrutable just farcical”.

      What is evident from Das’s books – and he is a great details person – is that the maths per se is actually not that complicated – certainly most can be done on a spreadsheet if you know what you are doing – no Fourier transforms and negative one square roots.

      Rather its the weird and wonderful ways there are to make money by marketting a ‘financial product’ and then eeking a small percentage off the throughput. The fascinating thing is how the percentage can be so small as to be sniffed at by outsiders but still provide huge incomes for brokers etc.

      The art to me is holding all the details of these arcane financial transaction systems in your head, sensing when you are losing or winning (which seems to be what the traders do as distinct from their tamed quants) and not going completely insane. Possibly its that some of these people who are good at maths like playing and exploring combinatorial games in their heads for fun – and in the world of finance they get paid for this.

  11. Newtownian

    Satyajit, You probably dont remember but I asked you at one of the ‘Extreme Money’ book launches just what was the psychology of the traders and merchant bank people on the ground.

    Time being short you offered the simple answer ‘Greed’. This article though seems to fill in many of the unanswered questions. So keep up the good blogging. The downside of course is you might be only able to retire in 200 years at the present rate the stories keep coming.

  12. skippy

    Is it time Das, the environmental conditions correct for a bit of myth busting? It is good to hear more and more advance the societal crime[s meme.

    Skippy.. it is not just a matter of – whoops – now, is it.

  13. Timothy Johnson

    A central theme of Shakespeare’s “The Merchant of Venice” is the agape that Antonio demonstrates for Bassanio (the other types of love are represented too). Shylock is lacking in love, his daughter Jessica abandons him and it is not greed for more money thaty is his downfall but his desire to see Antonio dead, by taking the pound of flesh.

    For Shakespeare it seems a core characteristic of the merchant banker was agape/carits/charity/love of humanity. Similarly the Quaker bankers (like the original Barclays) where driven by such ethical motivations (i.e. see http://www.youtube.com/watch?v=cl1QQ-jX7nI).

    I think we need to understand what changed in the nineteenth century that meant banking expunged agape.

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