Comments on naked capitalism: Hubris, Denial, and the Financial Services Culture...

Of topic but "A long time ago at McKinsey" reminde...

2008-05-05T17:31:00.000-04:00

Of topic but "A long time ago at McKinsey" reminded me of (former) McKinsey analyst Frank Ostroff and the wonderfully thought provoking discussions we had during the mid-1980s about what came to be called globalization.

Very sharp guy who really helped me concretize my thoughts/writing about 'Global Finance Capitals' (GFCs, the fusing of production and finance capitals, their internal contradictions but moreso those between these entities and national states).

dd: cold fusion could work yet... so far it hasn'...

2008-05-03T08:46:00.000-04:00

dd: cold fusion could work yet... so far it hasn't... so far its been a hoax... but, who knows, there's something it its ring that promises that maybe, possibly, down the road, put in the best hands and given long enough .. well it might work....

The issue is transition. Financial instruments cre...

2008-05-02T20:20:00.000-04:00

The issue is transition. Financial instruments create wealth but in and of themselves have no value. Milken understood that; as many financiers before him. Public acceptance is crucial. We have moved to the new realm of virtual valuations. This transition is as hard as the move from gold to fiat. The Fed supports it and the younger generation is comfortable with virtual valuations. It could work yet. But the danger of "reality" might undo it yet.

Yves,One comment on the point made by one economis...

2008-05-02T19:31:00.000-04:00

Yves,
One comment on the point made by one economist on the fact that unemployment was low by historical standards.

Unless economists wake up and protect the integrity of their data by rejecting constant rejiggering and readjustment, they will never be able to draw any accurate conclusions. If you look at traditional measurements of unemployment, we have been over 9% for a long period. Some measures have us at over 12% using traditional techniques.

We are like a frog in a boiling pot of water who believes that it cannot be very hot if the thermometer is broken, or short of mercury.

Economists as a profession face the total loss of credibility if they lack the character to demand accurate and consistent data, otherwise they are analyzing tea leaves.

I think gapingvoid put it best. The social pyrami...

2008-05-02T17:17:00.000-04:00

I think gapingvoid put it best. The social pyramid/corporate hierarchy is formed by the losers surmounted by the clueless and crowned by the sociopaths.

Thanks for a great post - and as a long-term emplo...

2008-05-02T13:24:00.000-04:00

Thanks for a great post - and as a long-term employee in the financial services sector, thanks for recognizing the cultural aspects of the issue - particularly the distinction between internalizers and externalizers.

The cultural issue speaks to a question of core values, which too often economists do not adequately recognize in their assumptions, and merely assume that progress toward maximal utility occurs.

However, progress requires learning, which is awfully difficult for our species...

money can buy respectability. orthodoxy is centra...

2008-05-02T13:19:00.000-04:00

money can buy respectability. orthodoxy is central to respectability.
diversity has entertainment value, but intellectual diversity can lead to, ahem, inappropriate thoughts.
inappropriate thoughts can lead to behaviors that are, ahem, inappropriate and condemned by all respectable people.
er, didn't I just spend all that money endowing myself a foundation to buy respectability.
stop thinking and start conforming.
life is good.
just do it.

This is a typical black/white discussion of a gray...

2008-05-02T13:08:00.000-04:00

This is a typical black/white discussion of a gray issue. Financial product innovation is just fine, but it has gotten far ahead of the regulatory response. The regulations needed are mostly to do with transparency: put high volume OTC derivatives onto standardized exchanges with clearinghouses; and incentives: tie those big bonuses to continuing success of a business, not just to this quarter's rigged number.

Milken and company are right to fear unfortunate consequences of the backlash -- but naturally fail to see how their own arrogance and simple-minded "government is always bad" ideology makes such backlash dramatically more likely. (Funny, they don't seem to object to government when they need the cops to evict someone they have foreclosed on ...)

Financial reform is too important to be left entirely to "Wall Street's Finest". They're paid not to understand the problem. But it doesn't follow that "shutting down the big casino" is a sensible policy either.

"they are incapable of learning from their mistake...

2008-05-02T13:04:00.000-04:00

"they are incapable of learning from their mistakes, since they never make any."

This can be a sign of sociopathic personality disorder.

Republicans are well known for not wanting to list...

2008-05-02T13:03:00.000-04:00

Republicans are well known for not wanting to listen to any viewpoint that differs from their own. I would say the hubris is what will eventually take them all down, but not before doing insane amounts of damage to the country. I don't know if we can even recover from the last eight years. Their damage to the financial system is in line with their damage to everything else they touch, caring only for their own profit and damn the consequences.

Evil bastards, indeed.

The problem is economic rent seeking in _both_ the...

2008-05-02T12:52:00.000-04:00

The problem is economic rent seeking in _both_ the public and private sectors. The solution is to stop taxing economic activity and instead charge a use fee for net property rights equal to the risk free interest rate times their liquidation value in place -- and then distribute the revenue thereby collected to all citizens equally. This gets rid of both private rent seeking and public choice rent seeking.

Of course, since the entire edifice is riddled with rent seekers in both public and private sectors, this measure is not going to be enacted prior to its collapse.

The Federal Reserve is one of the most egregious examples of the conjunction between the sides of rent seeking I'm sure no one at the conference went around trumpeting the abolition of the Fed.

should read "doesn't have actual hands on survival...

2008-05-02T12:00:00.000-04:00

should read "doesn't have actual hands on survival skills."

I've seen this inability-to-face-the-music attitud...

2008-05-02T11:58:00.000-04:00

I've seen this inability-to-face-the-music attitude for years in the sheltered professional class. I've worked with them and gone to school with them. There's a simple reason for it-- if all the shit finally hit the fan, most of these people would be helpless.

How many of them know how to change a tire? Or win a street fight? Or drain a hot water heater for clean water? Or how to dam a small stream and spear the fish you trap. Or growing food? Or even how to fix a paper jam in a copy machine? There is nothing more pathetic than watching a grown man flip out and scream for a secretary because the copy machine has a jam, and he can't fix it by following the instructions on the panel.

What am I talking about? When a person has actual hands-on survival skills (beyond sycophancy and following the herd) then he or she can't bring themselves to face the reality that when things go wrong they are helpless. Sure they are good at yelling at the copy repair guy/butcher/mechanic/security guard and threatening them with a lawsuit, or threatening their secretary with termination. But, they know, deep in their hearts, that if we ever DID suffer an economic reversal like the depression they would be helpless if they had to really scrape by.

For people who like to call themselves the ''masters of the universe,'' facing the fact of their own actual helplessness.

I like Panglovian. It has a nice spoonerist/spoon...

2008-05-02T09:48:00.000-04:00

I like Panglovian. It has a nice spoonerist/spoonerism aspect to it.

Panglovian: someone who asserts, everytime they hear the ringing of a bell, that we live in the best of all possible worlds.

In an economic context, a Panglovian is someone who, when asked for advice about an economic situation, always responds that free and unregulated markets will deliver the best possible result.

On a personal note, I am an economist by training. I was in (then) Soviet Georgia for a wedding in 1991, a few weeks before the failed coup. The groom's father was a well connected industrial manager who wanted me to meet with the economic minister and give him some advice about what they should be doing. This didn't sound interesting to me, and I got out of it (a couple of others went in my place) by parroting (parodying?) "Supply and Demand, Supply and Demand."

"These were complex products, yet obfuscation was ...

2008-05-02T08:51:00.000-04:00

"These were complex products, yet obfuscation was considered acceptable."

It's called plausible deniability - and Milken only wishes he could have insulated himself so well.

I visited the Milken Institute site. Under the "History" section, it says the following:

"Philanthropist Michael Milken and his brother, Lowell, endowed the Milken Institute for Job & Capital Formation in 1991."

Philanthropist? The first entry in his bio should read. "Milken - previously convicted for six securities and reporting felonies, after being charged with 98 counts of racketeering and fraud."

This is how we got here.

Shouting-down dissent is a well-known "conservative" debate tactic. I thought we'd have learned.

I'll write something longer later, but have a shor...

2008-05-02T08:45:00.000-04:00

I'll write something longer later, but have a short indication of how slanted this culture of the financial world is.

For years, I was known as the "commie bull" because was bullish the stock market in the late 90s and didn't spit in anger every time someone said the word "taxes".

Panglossian

2008-05-02T08:43:00.000-04:00

Panglossian

Sounds like the "moral hazard" was on full display...

2008-05-02T07:52:00.000-04:00

Sounds like the "moral hazard" was on full display. The frat boy sociopaths continue to call the shots while the Government scurries after them cleaning up the mess.

All derivative financial models "derive" their value through the inherent assumption that the return of capital is of fundamental importance. Clearly,
derivative securatization has been employed as a vehicle for committing fraud on an unimagineable scale. The securities were misrepresented and sold by the financial industry to collect short term fee based income with the clear intent of defrauding the public.

Gangsters are always full of hubris and sociopathic cruelty. The corruption has penetrated government to the core, including law enforcement. The complete collapse of the financial system may be the only outcome possible under the current structure.

Marked to market accounting may well turn out to b...

2008-05-02T07:26:00.000-04:00

Marked to market accounting may well turn out to be the big lie, and the big history lesson, from this crisis. This is also a product of a childish, toy-obsessed (e.g. derivatives) investment banking culture.

The investment banking culture is shoulder deep in...

2008-05-02T06:21:00.000-04:00

The investment banking culture is shoulder deep in psychopathic behavior, and completely without adult supervision. It is cultish, and childish, enabled by the free option in its risk taking compensation structures.

The degregulation/innovation crowd, on the Street ...

2008-05-02T06:12:00.000-04:00

The degregulation/innovation crowd, on the Street and in the academy, has gotten nearly everything _wrong_ in a generation of noisemaking and policymaking. When 'the Crisis of Our Times' is over, many of their policies are going to look very different or be junked, and their intellectual reputations are going to be devestated. It is no surprise that, facing career discredit, the response of that lot is to deny there is a problem while hinting that should any problem at some point occur it was/will be created by someone _other than them_. Reality will sum the book on their intellectual and practical contributions to their society, and the number is going to be negative in most cases.

Lew Rainieri: He has repeatedly popped un on record in the last nine months with rather humble statements of real concern for securitization and the credit squeeze generally, which says something for his perspicacity and perhaps his honesty. He didn't design securitization for it to be turned into an automated sandcastle-making machine, and perhaps is prepared to acknowledge just how corrupt that process had become.

Lisa Randall: I have a pronounced if non-technical interest regarding the areas in physics in which she has come to specialized. Her thinking is extremely elegant, and she also has the ability to present complex ideas in forms readily comprehensible for lay audiences, an ability which tends to correlate well with intellecual insight. I'm not surprised, though certainly pleased, to hear lucidity and candor emmanating from her place at the table. Certainly she shows these in her professional work.

Actually, it sounds more like the Moonies than an ...

2008-05-02T05:09:00.000-04:00

Actually, it sounds more like the Moonies than an economics conference.

Never mind, good old physical reality will sort out this particular manifestation of folly in due course. The underlying human frailty is less tractable.

49 1/2

Sounds like the Milken conference got things right...

2008-05-02T04:35:00.000-04:00

Sounds like the Milken conference got things right, despite the socialist leanings of the academics! Great to hear. Next year I'll plan to attend.

Adam