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James Galbraith, Neil Barofsky, and John Coffee Discuss Lessons from Lehman Meltdown

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I have to confess that given the length of this panel discussion presented by Better Markets, I’ve looked only at the start, which is quite promising. Given the caliber of the participants, I’m hoping to get to it over the weekend, since it will be a departure from the bromides the MSM seems to be serving up on this anniversary of the Lehman collapse. This talk is oriented towards a discerning audience and offer more insider detail.

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34 comments

  1. Chris Rogers

    Yves,

    I’ve just finished watching all of this, so glad you posted the YouTube link.

    Its a good discussion – whats frightening though is that the panelists seem agreed that the lack of regulation and further concentration within the banking sector, means its a matter of ‘when’, not if another crisis hits, and as with 2007/8, derivatives will be at the heart of this.

    I’ll try and get a transcript of this organised if you chaps don’t beat to it, but glad to see not all in DC are blind to the crass stupidity that is still being continued from both Wall St. and the City of London.

      1. Pwelder

        At about 1:15 there’s a pretty good shredding of the NYT’s recent reporting on prosecute-or-no decisions by the regulators.

        Not as extensive as what has been posted on NC.

        But fewer typos. :>)

    1. LucyLulu

      Chris,
      I, for one, would loooooooove it if you’d type up a transcript, and be most grateful. I don’t have the attention span for videos, especially long ones. :(

      Chris Hayes had Barofsky on his show the other night, along with Alexis Goldstein, OWS (love her), and Joshua Green, from Bloomberg News. Barofsky must be making the rounds. Best line in show:

      Alexis: “But I think that same narcissism exists in the Obama administration who has the audacity to consider Larry Summers, the architect of the deregulation that led to the financial crisis to run the Fed. This is the man who lost a billion dollars making a bad bet on interest rates, and now we’re like, we think you should be in charge of interest rates. That’s a really good idea.”

      http://video.msnbc.msn.com/all-in-/52997175/ Part 1
      http://video.msnbc.msn.com/all-in-/52997227/ Part 2
      (transcripts included with videos, but videos recommended as transcript has errors and is confusing, tapes aren’t long at all)

      There isn’t anything that we on NC don’t already know, but it was a very good piece on the crisis and the ensuing recession, and it’s well-worth watching. Sometimes MSM, even TV, gasp, gets it right. Though Hayes was better when he was on the weekends, his work was obviously not subject to network influence. He’s now backing off in some of his pieces and reporting silly stuff like Wiener stories, which is very disappointing. But here he’s true to form.

    2. C

      The New Republic has a good article up about the other derivatives on food. They point out that global food prices are being packaged as derivatives as well by some of the largest shippers and handlers of food stocks in ways that often dwarf Wall Street’s actions. These derivatives are also traded completely in the dark largely by privately held companies with no meaningful regulation.

      It is one thing when house prices spike and people rent. It is another thing when food prices spike and people starve.

      See: http://www.newrepublic.com/article/114577/commodities-trading-hedge-funds-spook-wall-st-banks

    3. Lafayette

      … but glad to see not all in DC are blind to the crass stupidity that is still being continued from both Wall St. and the City of London.

      And so what are we going to do about it? Light a candle or curse the darkness?

      Nothing will change the status-quo in LaLaLand on the Potomac (regarding bank regulation) unless it comes from the Ballot Box. Which means that grassroots mentality needs to awaken to the present danger.

      That danger so evident by the manner in which, apart from the Progressive Caucus in Congress, the Banksters have the others CongressPeople by the financial short-’n-curlies.

      Frankly, a good start would be to formally separate Commercial from Investment Banking. Perhaps as two separate companies within the same conglomerate; but if and when an Investment Bank fails it does not affect “our” accounts at the Commercial Bank.

      Of course, this separation will mean that the Investment Banks wont have the collateral reserves upon which to borrow money for whatever risky investments they may want to undertake. How many people understand that our money is employed as collateral to supply funds to the Investment Bankers.

      Which means, when an Investment Bank dives, we, the sheeple, must pay the damages and hope that government insurance will replenish our funds.

      But why in hell should public funds be employed to foster bad risks in the first place? Who came up with this cockamamie idea?

      If the Investment Banksters want funds for investment purposes, let them generate those funds out of their own profits. Or sell more stocks. In that manner, the risk is contained, taken by those who rightly should assume it.

      And not me, you and Joe Bloggs in Peoria who wouldn’t know an Investment Banker from an Undertaker.

  2. Frank Pasquale

    Be on the lookout for moderator Jennifer Taub’s book–it’s a very, very smart take on the crisis by someone with long experience in finance law and a great writing style.

  3. Jennifer Taub

    Thank you for drawing attention to our panel. It was an honor to act as moderator. Looking forward to your thoughts once you finish watching.

    Best Regards,

    JT

  4. Banger

    I haven’t watched all of the video but I think it’s important to understand Prof. Coffee’s remarks on the regulatory agencies which was about as articulate a description of Washington in general as I’ve heard. I want all of you to take what he says very seriously because it is exactly my experience throughout government. Everyone is concentrating on the capillaries and not the jugular throughout government and everyone is risk averse particularly these days of pending budget cuts.

    The liberal idea of the government being an intermediary force against private interests is dying and has been dying. I’ve said for some time now that the feds have, basically, crossed the line from being a net plus for the people to being a net minus. Bureaucrats however well-meaning aren’t going to be able to save us. Increasingly, they are being tempted to go along to get along and move to a better job on K Street or Wall Street. Private industry is now in a position to just outgun the public sphere the best the regulators can do is to organize an orderly retreat and minimize damage which is, in my view, a worthy enterprise.

    1. BillC

      The DC Circuit: where good regulation goes to die.

      One issue mentioned only a couple of times, but almost as important as the disparity between private and public interests in funding for advocacy is the role of the DC Circuit. More attempts by Federal regulatory agencies at effective rule-making and adjudication get clobbered here than in the Supreme Court. It’s usually not headline-grabbing news, but the DC Circuit’s incessant gutting of careful administrative judgement by even the best regulatory agencies is probably, in the economic sphere, still more destructive of Federal regulatory effectiveness than the high-powered lobbying that goes on in those agencies.

      Packing this court with anti-regulation idealogues has been a consistently-executed and very successful strategy of TPTB for about three decades. Given this bench’s relative youth, it’s gonna take about that long to clean out the mess … if we ever get a President who’s willing to try.

      1. Banger

        Well, that’s true enought but if it wasn’t the DC Court it would be something else. The point is that one way or the other the system has been gamed and it has been gamed by an all-out assault by the corporate sector since Roosevelt. The army of lawyers, operatives, lobbyists, PR people, fixers, and phony journalists have been paid handsomely to destroy the system all that time. Now the war is over they have won. But what have they won? In the end, I believe, it will turn out to be a hollow victory. If the oligarchs continue on the course they’re on they will lose the support of the people–in fact, that’s beginning now—the lack of enthusiasm for war on behalf of the American people, who have always been able to be stampeded into war, may signal a major political turning point that will have an effect on American attitude on the oligarchy.

        1. skippy

          @Banger,

          Sorry to reiterate. Its more than the American people, a world watches. Having corroborated with others to check for individual influences, questions are emerging across a large swath of social strata – around – the orb.

          As Lambert’s last post covered, the porcelain facade is showing its flaws as result of weathering. Both party’s are walking into walls, in full view, of the little people. Not only that but, their starting to consume the 20%… cough the base, in an attempt to stave off the day of reckoning.

          skippy… what occurs when they run out of totem poles IDK.

    2. profoundlogic

      “The liberal idea of the government being an intermediary force against private interests is dying and has been dying.”

      They were actually performing the autopsy as soon as Rubin stepped foot in the Treasury.

  5. Dan Kervick

    Barofsky’s comments deal in part with the lack of accountability in the regulatory agencies, and specifically mention Larry Summers’s fail upward career trajectory.

    1. Chris Rogers

      Dan Sir,

      It was also interesting to note Barofsky’s change of tune on one Tim Geithner, and that this change of opinion has occurred since the publication of Ms. Bair’s book, i.e., that of dysfunctional personalities, which obviously Summer’s fulfils with aplomb.

  6. craazyboy

    This was good. Downloaded a copy so I can watch it when we have our next, and possibly last, financial “accident”.

  7. clarence swinney

    PAY OFF THAT HORRID DEBT
    Since 1980 three so-called Conservative presidents
    have this record

    Debt is 17,000 Billion.
    Republicans created 12,000 of it.

    9000 directly charged to the Big Three (Reagan 1700—Bush I 1300—Bush II 6000)
    3000 charged indirectly as a result of their policies and actions.
    Of that 3000—1000 Clinton paid in interest on their Debt
    and 2000 Obama has paid for (Bush Tax cuts—Bush two wars-Bush Great Recession).

    From 1945 to 1981, each President worked to pay off WWII Debt
    and had it down to 907B

    Reagan began the Conservative Spend and Borrow Let Our Kids Pay Tomorrow
    via policies of intervention in foreign affairs—huge tax cuts for the rich
    which reduce revenues—let Wall Street wealthy gamblers go unregulated.

    Those three over 20 years created 99,000 net new jobs per month or just enough to cover new entries into the work force. Carter + Clinton created 222,000 per month over 12 years. From 1921 to 2003 the Republican presidents had more years in office but created only 800,000 jobs per year compared to Democratic presidents with 1,800,000. On each domestic issue the Democratic presidents have, by far, the best record. Republicans can run only on Values not Issues. Their ideology gave us the Great Depression and Great Recession. Exact same policies.

    Will they ruin America? In 2011, they control the Major Corporations, Major Media, Wealth and Income. They had Total Control of our government for (2001-2006) six years and their belief in unrestricted Gambling came close to destroying the world’s economy..

    Their ideology, as in 1920s, created the Great Recession as a result of Housing Tsunami, and Financial Volcano. Cut taxes for the rich, increase money supply, lower interest rates and encourage gambling on Wall Street. That is why, since the Great Depression, they have been called the Country Club Party.
    The new name is WSP Wall Street Party. Their true God has always been $$$$$$$$$$$. Their promotion of Values has been a diversionary tactic to keep attention off their failed Issues policies.
    What have the done to improve the Standard of Living of the Middle Class???
    They talk Values but do not live them. They are phonies. They support pathological liars. The worse the better. They worship Mush Dimbaugh and his 10,000 lies (documented) over 4,000 hours.

    1. Min

      Federal gov’t debt is money for us. The way we have it set up, to pay off the debt would drain money out of the economy. Right now we need more money, not less.

    2. readerOfTeaLeaves

      It’s hard to believe that all those people are sociopaths. The culture has changed. Far too many people are operating using a faulty business-school based ideology that has been taken to extremes. This has infected political thought (see also: Heritage Foundation, Chamber of Commerce).

      Read Yves’ book ECONned: How Unenlighted Capitalism Undermined Democracy and Corrupted Capitalism for her explanation of how flawed business ideology continues to produce terrible social and political consequences.

      To make my point in another way, here is a video interview with investor Jim Rogers done in 2013. He makes a very interesting point around 8 min into this Reuters interview with Chrystia Freeland:

      - In 1958, the US turned out 5,000 MBAs
      - in 1958 the rest of the world turned out 0 MBAs
      - in 2012, the US turned out 200,000 MBAs
      - and in 2012, the rest of the world turned out additional MBAs, creating huge competition in finance

      IOW, in Rogers’ view, there is now massive competition in finance, and this competition is accelerated by a huge amount of leverage. In his view, “finance is finished.”

      Although finance may be ‘finished’, the biz-school logic that drives it still has far, far too much influence on US social and political policy. IMVHO, the idea of Larry Summers as Fed Chair is simply Exhibit A of this larger social problem.

      This interview with Jim Rogers is well worth a bit of your time:
      http://jimrogers-investments.blogspot.com/2013/02/reuters-video-chinas-ascension-wall.html

      And now… I’ll try to watch the video linked in this post…

  8. clarence swinney

    NAked CapitAlism in Alamance County NC population
    Loaves amd Fishes had many locations to give free food to the truly poor. Closed. Lack of docations? Many millionaires reside here. Their tip money would help.
    This is true anti-christ action for what I consider a good county.

    1. They didn't leave me a choice

      What.

      Please take your incoherent rambling elsewhere. Making heads or tails out of this pile of crap is impossible.

      Also, please note that paying back the national “debt” is pointless, at least for now. The only good thing resulting from it would be to deprieve the rentier filth of interest income. Lofty, yes, but other reforms must take place before the money to “pay back” the “debt” is created.

    2. Jim in SC

      I got your point, Clarence. Food aid seems to be slowing down. We’re just south of Charlotte, in SC, and I see much the same thing. Many worthwhile charities and help organizations are just not being funded.

  9. diptherio

    At around the 38 minute mark Barofsky points out that the revolving door does not necessarily lead to poor regulation. He is undoubtedly correct, but I would say that the revolving door does put individuals in “a near occasion of sin,” to re-purpose a phrase. That’s enough for me to support banning the practice outright.

  10. Chauncey Gardiner

    I look forward to viewing this video. Tomorrow marks the fifth anniversary of Lehman’s bankruptcy and the overthrow of our democratic republic and the rule of law by financial racketeers and criminals. Through their control of government and central banks they have been able to avoid prosecution and accumulate incomprehensibly vast fortunes and political power. They have caused economic damage that has resulted in millions of Americans and Europeans losing their livelihoods, houses, small businesses and savings; the bankruptcy of municipalities; the closure of massive numbers of public schools; impaired the financial resources of pension plans and the environment; while they have preserved their continuing capacity to inflict further damage on the country through financial derivatives that Warren Buffett has called “financial weapons of mass destruction” unless they continue to be granted immunity and the ongoing transfer of wealth into their own hands.

    Yesterday, economists at the Dallas Federal Reserve Bank published a report that estimated the damage these individuals have caused to date likely exceeds the nation’s total GDP for one year [See: http://dallasfed.org/assets/documents/research/staff/staff1301.pdf ]

    Money and Markets are too important for a society to continue to be in the hands of sociopathic criminals and financial terrorists. Bring back the Glass-Steagall Act, move the Federal Reserve Bank under the Treasury Department, and enforce laws and regulations.

  11. JEHR

    This panel gives a very good summary of the financial crisis much of which has been covered by NC for years now. It leaves me with the feeling that things are so bad in so many places and in so many ways that it will take a miracle to correct. As suggested in the video, pitchforks could, indeed, be instrumental in that change.

  12. allcoppedout

    There’s a book review here – http://www.pieria.co.uk/articles/the_blind_eye_of_admati__hellwig_why_their_book_bankers_new_clothes_is_simply_wrong?utm_source=Pieria+Subscribers&utm_campaign=c347c5ad8b-Newsletter_15_23_2013&utm_medium=email&utm_term=0_deda1ba8c1-c347c5ad8b-3938409 – which makes points I do agree on on howmuch capital banks really need to be free-standing businesses, and tells us by implication from how difficult this would be, that banks have never been making the profits they claim.

    I agree with the “pitchforks” view. I have the banks needing 15 -30% more capital and as the review states this is impossible. The underlying problem is enormous and beyond simple regulation – we need demolition and rebuilding. My estimate of the capital needed for banks to be free of subsidy by us and various front-running and Ponzi valuation scams assumes business-as-usual. Instead, I favour a Cyprus-Greece-Ireland-Poland template for the people instead of system protection. We should collapse the problem and have a sophisticated redistribution-jubilee.

  13. Phrase

    Thanks … i wish i had as much confidence in the central banks and the global institutions as i perceive John Coffee has. He is certainly very knowledgeable. But at this point i’m in the anti-globalization camp until regulation can catch up. … The non-elected global financial institutions tend to be unaccountable to the social contract and the public good, imho.
    .
    I remember those days in horror as Prof. Bill Black introduced me to the ‘banksters’ during an interview with Bill Moyers. … I couldn’t believe the systemic nature of this control fraud. … Well, that interview set off about a year’s worth of research to try to understand what was taking place. … As a result i wrote these rather lengthy talking blues type lyrics which i still haven’t set to music. … Some may enjoy so if i may :
    .

    World in Tatters Blues © F.H.Lindsay-09/06/22 … lyrics

    mind over Monday’s …
    financial crisis matters.
    the broker-dealer, self-regulated wheeler,
    free-market cranksters, banksters,
    casino ponzi style pranksters
    .
    democratize those liars loans
    no due diligence, non-recourse…
    jingle-mail homes.

    overvalued, asset backed, ARM’s
    commissioned, bonus’d, pooled and packed
    what’s wrong with obese to lean …
    no in-between
    .
    Cheered-on, revved-up
    bubble-nomics going for bust
    invisible hand , head in the sand
    borrow borrow , … there’s no tomorrow,
    forget the past , shadow masters dash
    corporatocracy will pad the crash …
    with public cash … imagine that!
    .
    off balance sheet, under regulated
    toxic risk in overdrive to hide
    in SIV’s, OTC’s, CDS’s,CDO’s,
    a stagnant mess is just redressed
    too big to scrutinize
    .
    speculatively derived, rated fast
    worth less but tripled A’d as best
    securitized, leveraged, globalized
    its the mark to market then to model ride
    .
    Revved-up, rave-on …
    bubble-nomics going for bust
    head in the sand,invisible hand ,
    there’s no tomorrow, borrow borrow
    shadow masters dash, forget the past
    corporatocracy will pad the crash
    with public cash … Abra..Ca-Daver-ah

    .
    T.A.R.P., …T.A.L.F., … P.P.I.P.,
    … its quite a list … spin-off
    bail-out the counter-parties from the under-capitalized,
    theirs yesterday, from our sorrows tomorrows …
    what’s that you say … they need to borrow.
    .
    need to greed and always needy
    spread the risk to even more off-shore
    the given … takes … controls finance political
    and … what’s the matter … with
    the world in tatters … blues
    .
    Rave-on, revved-up
    bubble-nomics going for bust
    invisible hand , head in the sand
    borrow borrow , there’s no tomorrow,
    forget the past , shadow masters dash
    corporatocracy will pad the crash … imagine that!
    . …
    (music bridge … anchor news voice RealNews or Democracy Now)
    . …
    see network news & the President’s men, assure us that the system will come together again. … For who … and for what … we have been waiting to be told , but it is very clear, that the boat we’re in now is really being towed. … Is that the horizon or a storm cloud of dust? … Those overly anxious among us say … “ my god it looks like mustard gas stuff. … Our union has been busted & our numbers will die if there’s acid rain too in the mustard gas sky. … I remember the old days, and that car I’ve been wanting to buy … but now I can’t save with my salary being one fourth of the size. … I’m always confused in the midst of this fuss … when the rules keep changing you’ve got no-one to trust. … We’ve been taught to obsess on our one giant ego … consuming on credit and grab as you go … think not of tomorrow … we’ll never grow old … but … the cynic iinside me is growing … or so I’ve been told.
    .
    Cheered-on, revved-up
    bubble-nomics going for bust
    invisible hand , head in the sand
    there’s no tomorrow, borrow borrow
    forget the past , shadow masters dash
    corporatocracy will pad the crash
    with public cash … imagine that!
    ……………..
    Lyrics for World In Tatters Blues by F.H.Lindsay (thephrase) © July 22, 2009

  14. JDF58

    James Galbraith raised an important question right up front: What are these huge banks really doing for us, considering that not too long ago we did very well with banks 1/3 their size? The banks being discussed here, indeed the banks responsible for the crash, are emphatically not the institutions the likes of which used to be the very important and locally beneficial businesses that benefited virtually everyone in town. Numerous thrifts failed in the early 1980′s because they got involved in activities that had nothing to do with their local customers and their local purposes. The failures of five years ago were because banks were involved in activities that had nothing to do with their local customers and their local purposes. Wouldn’t it be reasonable to return to smaller, local banks that are wholly committed to their respective communities?

    The notion put forth that financial markets are necessary for controlling or benefitting the economy is nonsense. Genuine economic benefit comes from the creation of true wealth – resources of the earth combined with man’s labor to create a tangible product. While the theorist might challenge my statement, the pragmatist will readily observe that, across our great country, the regions of greatest economic stability and lowest unemployment are where the economy is farm-based – resources of the earth plus man’s labor.

    On regulation – these gentlemen said it all, as if it wasn’t already obvious. The bankers control the regulators. And now we’re considering taking a man who was in the middle of the 2008 crash and appointing him to head the Fed? We shouldn’t be surprised.

    1. Banger

      If you follow the work of Prof. Galbraith you know how excellent his analytical abilities are–I’m a flat out fan of the man as I was of his father.

      The reality is that banks as well as increasingly large part of all economic sectors serve little practical purpose at least in benefiting the country as a whole. We are in situation right now when productive capacity is just being overtaken by vested interests who simply want to collect tolls for being there. There is, for example, no useful purpose for the medical insurance companies–they add no value and just collect their elaborate tolls and their execs party. The body politics has attracted parasites and those parasites are killing us. We still are surviving on the momentum we achieved during WWII and the post-War era by creating a well-run and highly robust system. At some point things will collapse–not because of some economic problem but due to the fact increasing parts of the economy understand that controlling the state guarantees a free ride. Parasitism is our problem and it’s time we identify it.

      1. Wat Tyler

        The first rule for patasites is: Don’t kill the host. But who will enforce the rule? IMO the parasites must be eliminated before the host (global economy) is dead or nearly so. The question is : Where will the leadership come from?

        Jim

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