Links 4/24/10

Apologies for the lack of my own posts. These are my last two days in London, and I decided to take in the town a bit.

Several Different Species of Killer Whales Likely Science Daily (hat tip reader John M)

Our Giant Banking Crisis – What to Expect Paul Krugman and Robin Wells, New York Review of Books

Dodd Bill Would Allow Fed To Hide Its Spending Ryan Grim, Huffington Post

More House Dems call for criminal investigation of Goldman The Hill

The Financial Crisis as Crime Story Danny Schechter, The Nation

6 Things Worth Fighting For in the Senate Bill Mike Konczal, New Deal 2.0

The Death of a Salesman Pam Martens, Counterpunch (hat tip reader Stephen V)

Antidote du jour (hat tip reader Jodrey):

More here.

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  1. attempter


    After any prolonged period of financial calm, they either forget history or invent reasons to believe that historical experience is irrelevant. Encouraged by these rationalizations, people run up ever more debt—and in so doing set the stage for eventual crisis. (One odd omission by Reinhart and Rogoff, by the way, is their failure to mention the late Hyman Minsky, a heterodox economic thinker who made a similar argument and is now experiencing a renaissance in influence.)

    Yes, that’s odd. Well, not so odd since Minsky’s “heterodox”.

    But evidently not as heterodox as Paul Baran and Paul Sweezy, not to mention Marx himself. Apparently Krugman’s doxyometer goes a little further than than of Reinhart and Rogoff, but just a little.

    Less partisan leaders nonetheless fret over the possibility that regulation might crimp financial innovation, even though it’s very hard to find examples of such innovation that were clearly beneficial (ATMs don’t count).

    There’s the ol’ Status Quo Lie again. There’s nothing “less partisan” about anyone who still claims to believe in financial “innovation”, like the way Krugman himself slammed Obama for repeatedly doing in the other day’s speech.

    By definition anyone who still champions the finance sector and lies about “innovation” is a hyper-partisan. It makes no difference if one is a straightforward kleptocrat like a Republican or a more politically indirect “liberal” one like a Democrat.

    But because Krugman is a hard core Democrat partisan, he therefore wants to put across the lie that the Democratic position is “less partisan”, is somehow the natural, objective, rational center. But the fact is that both Reps and Dems are hardline corporatists and kleptocrats, hard to the economic right.

    Krugman’s a hyperpartisan in telling lies about being nonpartisan. Just like all other hyperpartisans.

  2. Andrew Bissell

    Jim Grant has an excellent op-ed in this weekend’s Washington Post. The best financial reform? Let the bankers fail

    As long as the various measures to socialize risk — mostly started in the 1930s and significantly amped up during the 80s-00s credit bubble — are still in place, all this debate about which regulatory regimes are best will remain largely ineffective and pointless.

    1. backwardsevolution

      Ten Things You Don’t Know (or were misinformed by the Media) About the GS Case

      1. This is a Weak Case: Actually, no — it’s a very strong case. Based upon what is in the SEC complaint, parts of the case are a slam dunk. The claim Paulson & Co. were long $200 million dollars when they were actually short is a material misrepresentation — that’s Rule 10b-5, and it’s a no brainer. The rest is gravy.

      2. Robert Khuzami is a bad ass, no-nonsense, thorough, award winning Prosecutor: This guy is the real deal — he busted terrorist rings, broke up the mob, took down security frauds. He is now the director of SEC enforcement. He is fearless, and was awarded the Attorney General’s Exceptional Service Award (1996), for “extraordinary courage and voluntary risk of life in performing an act resulting in direct benefits to the Department of Justice or the nation.”

      When you prosecute mass murderers who use guns and bombs and threaten your life, and you kick their asses anyway, you ain’t afraid of a group of billionaire bankers and their spreadsheets. He is the shit. My advice to anyone on Wall Street in his crosshairs: If you are indicted in a case by Khuzami, do yourself a big favor: Settle.

    2. DownSouth

      Andrew Bissell,

      What’s it like to live in a defactualized world, like you, James Grant and others from the Libertarian-Austrian-Neoliberal (LANie) constellation do?

      Grant admonishes us to “Let the senior financiers keep their salaries and bonuses, and let them do with their banks what they will. If, however, their bank fails, let the bankers themselves fail. Let the value of their houses, cars, yachts, paintings, etc. be assigned to the firm’s creditors.”

      Completely absent from this picture is the fact that when the banks fail, a lot of innocent people get hurt, perhaps even to a greater extent than the guilty bankers themselves.

      Then Grant goes on to tell us that “The plausible threat of personal bankruptcy would suffice to focus the minds of American financiers on safety and soundness as they have not been focused for years.”

      So according to Grant’s simplistic formulation, people won’t drink and drive because of the threat of self-immolation. That, after all, would be paying the ultimate price, wouldn’t it?

      Of course for those of us who live in the real world, and not the “paradise of innocence” that the LANies live in, we know it doesn’t work that way. People do drink and drive.

      The LANie prescriptions for the economy are therefore tantamount to allowing people to drink and drive, and then when some drunk plows into a crowd of innocent bystanders, the only punishment suffered is that they taxpayers will not buy them a new car.

      Granted, that may be better than the system we have now, where taxpayers are indeed forced to buy the drunk drivers a new Lamborghini. But it is horribly naïve and simplistic to think that alone will fix our current problems.

      1. Hamish

        Downsouth, I’m no Austrian and no diehard Jim Grant fan either, but allowing banks to fail is no bad idea per se. Allowing them to outright collapse without warning or a presribed process IS bad.

        Taking over insolvent banks while protecting depositors might encourage shareholders and bondholders to exercise some control over managements given that they know that they will wear the consequences. WaMu etc did not bring down the system, and things might have been smoother if depositors had known that they would be treated as gently as they were. Yes, bondholders and shareholders would have been harmed, but that is the point.

        As for your metaphor about allowing drivers to plough into innocent bystanders, I would submit that savers and retirees are those innocent bystanders and they are very much feeling the pain that negligent shareholders and bondholders should be feeling instead.

        1. colinc

          Is it not possible, perhaps even probable, that at least some, maybe a significant portion, of those “savers and retirees…innocent bystanders” were also members of the “negligent shareholders and bondholders”? I find that it is likely that that is the case, whether through their own actions and decisions or by those of the people “managing” those savings and retirement accounts by making “investments” on the behalf of the savers/retirees.

          “We have met the enemy and he is us.” – Pogo

      2. Andrew Bissell

        The only “paradise of innocence” is the one you live in that says depositors and counterparties should share absolutely no blame or losses if their bank goes under. You deposit your money with Corus Bank because they’re paying 0.05% more on savings accounts by investing it in Florida condos? So sorry, you deserved to lose some of it. Depositors in weak banks are more akin to the driver’s drinking buddies who hop in the back seat with no seat belt.

        There is no way to organize a fractional reserve banking system such that it will never produce any losses, anywhere. The question is only who eats those losses, and how to limit the frequency and size of losses that do occur. We’ve seen what schemes to socialize risk, such as bailouts and deposit insurance, do to the quality of bank lending, and we need a different approach.

        I’m not sure exactly what you would consider the analog to outlawing drunk driving in this case. More broadly defined and vigorously prosecuted anti-fraud statutes, with prosecutions of criminal bank officers? Makes sense to me. Hard-and-fast leverage limits at deposit-taking institutions? I’m for that one too. Limiting the size of institutions to small share of the market so none are too big to fail? They never got this big during the era of free banking, so TBTF is probably also a relic of socialized risk anyway. Cut ’em down.

        Obama’s institutionalized bailout scheme, where we have a bunch of regulators watching the banks’ every move trying to figure out if they’re doing the right things or not? Good luck with that. My suggestions in the previous para are about as good as you can really get, and we’ve seen that even they can be thrown overboard if people are in the mood for a wild and wooly bubble. Actually, perhaps another “paradise of innocence” is the one that naively hopes that, when the next major credit bubble is raging, regulators will do any better job of standing apart from the mass mania and stopping it than they did this time around.

        I don’t know of any LAies (I’ll exclude the neoliberals, who are not Austrians or libertarians … but nice try lumping them in with Larry Summers and Bob Rubin) who ever seriously suggested that if you give people a system where they pocket their gains and pass their losses off on to third parties, that they would behave like angels. Here’s one major Austrian even arguing that, as long as a central bank still exists, it’s a mistake to free the banking system from major limits on risk-taking, repeating arguments Rothbard made decades ago:

        I suspect your real problem here is probably more with Grant’s suggestion that truly successful bankers should be allowed to keep their salaries and bonuses, since you live in a kind of anti-“paradise of innocence” where all great wealth is undeserved, unearned, and worthy of confiscation. And if you think that Grant believes people will never make mistakes and banks will never fail, as long as government is out of the equation, you’ve obviously never actually read any James Grant. He (and I) are just much less convinced of the utopian idea that an agency of regulators handing down dictates from the clouds can better restrain these periods of human folly than simply aligning incentives so that no one working at a bank can ever again say, “I’ll be gone, you’ll be gone.”

        1. Sundog

          quoting AB:

          [Grant] (and I) are just much less convinced of the utopian idea that an agency of regulators handing down dictates from the clouds can better restrain these periods of human folly than simply aligning incentives so that no one working at a bank can ever again say, “I’ll be gone, you’ll be gone.”

          Cheers for the post. But if you’ve come to a site called “Naked Capitalism” expecting utopia, fuggedabadit, no such straw man lurking here. And aligning incentives ain’t so simple.

  3. backwardsevolution

    Lawyers want to know whether Goldman was partly responsible for triggering Lehman Brothers’ downfall by shorting Lehman’s shares.

    “Goldman has been subpoenaed to hand over documents to Lehman’s Bryan Marsal, the man responsible for winding up the bank’s affairs and repaying creditors. Goldman was named in the court filing along with four other firms, including hedge funds SAC Capital and Citadel. Goldman declined to comment on the Lehman case.”

  4. backwardsevolution

    Sounds like they’re circling the wagons:

    “After taxpayers rescued American International Group from the brink of collapse, the U.S. government moved to protect its investment by appointing directors and special trustees to oversee the company. Now the government’s appointees, all hailing from Wall Street or the Federal Reserve, are allowing AIG to withhold key records generated during the company’s decline. The documents could decode the murky circumstances leading to the second largest bailout of the financial crisis. The Huffington Post Investigative Fund has learned, in the course of inquiring into oversight of AIG, that the government’s six appointed directors and trustees are resisting calls for AIG to release its internal documents and e-mails from that time.”

    “In any examination of corporate behavior, e-mail and internal documents are “the holy grail,” Spitzer told the Investigative Fund. Such records, Spitzer noted, have been pivotal in making cases against executives of corporations such as Enron.”

  5. Richard Kline

    LOOONNGG interview over concerning the workings of our present US financial oligarchy at Alternet by Bill Moyers—on song with his homework done—of Simon Johnson and James Kwak—both laying it on thick and good. Worth a link at least.

    But what I found most interesting about it is that everything in it was discussed here first—a year and a half ago. Even down to the language used and some of the metaphors. I don’t see that as bad, but as an interesting instance of how ideas get rolling in the blogosphere to amplify into larger narratives making seeping into the larger media. I know that Johnson and Kwak are much cited here, and even more that they and Yves draw on overlapping sources in many respects. But still, NC in posting and commentary is months ahead of the narrative. One might advance the opinion that some of what _becomes_ the narrative is test-seminared here in real time. Hmmm. I *like* that notion, whatever it’s truth value may be.

    1. LeeAnne

      Thank you Richard. Its an observation worth noting. If they were not fat cat media it would be called plagiarism.

      If the best way to make money is to own a bank, the best way to spin new ideas for your interests is to own the media.

      They may not want to give credit where credit is due, but new media will out.

      1. lambert strether

        The same cycle happened in the political blogosphere 2003-2006 in the battle against the Bush administration, where most of the talking points against Bush were devised there, and propagated outward into the mainstream. Unfortunately, most of the high traffic blogs went “pragmatic” and became meme laundries for D factions in 2006-2010.

        It’s to be hoped that the same cycle doesn’t repeat in the economic blogosphere.

  6. backwardsevolution

    “The Vampire State Partnership: the State and Wall Street

    The Central State and Financial Plutocracy are bound in a mutually beneficial, highly predatory partnership.

    The Mainstream Media is missing the Big Story in the SEC/Goldman Sachs filing: the Central State needs the predatory “too big to fail” investment bankers to churn out the credit, leverage and insider deals the State needs to survive in an era of exponentially rising debt.

    There are adverse ethical and financial consequences of this partnership; in the short-term, the rot has been papered over, and simulacrum “reforms” to sooth public anger will be passed.

    But the partners each depend on the other for their very existence, and threatening one threatens both.”

  7. LeeAnne

    ‘Nassim Nicholas Taleb says the same thing:

    “After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.”‘

    And regulation? “… the lack of understanding of reality” in Taleb’s words, usually gets you institutionalized, heavily medicated or at least unemployable.

  8. NS

    meh, the taxpayers are the majority shareholder of AIG who is the largest insurer of Board members and senior management of Goldman against shareholder and other lawsuits. We can’t win, we’ll pay for Goldman’s lawyers and any penalties/settlements. On top of that, we’ll pay out-sized salaries to the executives of AIG for doing it. Its a catch-22, laws are only for us little serfs and don’t apply equally to our new world robber barons.

    Rather than risking a criminal prosecution, they will settle, only to resume business as usual and ‘catch me if you can’ but you can’t because the our alumni occupy positions of regulatory authority and advise the president himself. We have paid attention and have all the bases covered…heads…we win. This is political theater and sacrificing of a low-end staff member is a PR stunt. I really hope I’m wrong.

    Still, I’m not proud, if the only satisfaction allowed is watching an underling squirm before a congressional cmmtee, I’ll watch.

  9. lambert strether

    Baseline for non-kabuki financial reform in the public interest:

    1. Break up the big banks;

    2. Bankster CEOs in orange jumpsuits doing the perp walk.

    That’s CEOs, plural, and by “CEO” I don’t mean “expendable underling.”

    Anything short of that reeks of FAIL, and the D effort reeks of FAIL.

  10. Doug

    How does “breaking up the banks” get rid of the political influence and corruption? THere is more emphasis on financial reform and not enough on political reform.

  11. Sundog

    Bay Area NC readers might consider attending the May 3 talk by Nils Gilman on Deviant Globalization.

    Hidden and powerful and growing worldwide at twice the rate of the legal economy, “deviant globalization” is described by Nils Gilman as “human trafficking, drug dealing, gun running, cross-border waste disposal, organ trading, sex tourism, money laundering, transnational gangs, piracy (both intellectual and physical), and so on.”

    He adds: “The structure of the current global economy is not designed for equitable, plodding growth; it’s designed to reward opportunistic, risk-seeking innovators. Were one to construct an investment portfolio of illicit businesses, it would no doubt outperform Wall Street.”

    Recent headlines on our southern neighbor:

    “Gunmen kill 4, wound top security official in Michoacan”,0,2131235.story

    The article mentions that Michoacan is the home state of Mexico’s President Calderon, and the attackers were not apprehended. What it does not mention is whether this action could have been accomplished without the collusion of security forces.

    “Mexican authorities attacked at Camargo bridge”

    “We’re hearing that 15 to 20 trucks of bad guys attacked the Mexican side,” the sheriff said. “We’ve got a lot of people coming in to Rio Grande City from the Mexican side.”

    One woman who asked not to be identified said the attack was heard from a nearby H.E.B. grocery store, 6583 Bridge Ave. People rushed inside the building to seek shelter from gunfire.

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