A year ago, while Washington was grandstanding about the about lazy, unethical, risky banking practices that put the entire country at risk -- I published a book. It was called The Devil's Casino: Friendship, Betrayal and the High Stakes Played Inside Lehman Brothers, and it chronicled, among other things, the lazy, unethical, risky banking practices that had put the entire country at risk in 2008.
At the time, the D.C. hearings and S.E.C. investigations were underway, and Washingtonians swore that they'd clean up the mess and regulate the hell out of Wall Street -- and that greed would be a thing of the past.
I expressed my skepticism at the time. "The crisis will happen again," I said. "Not tomorrow, and not in the same way -- but you cannot regulate greed." That, really, was the central theme of the book, which looked at the evolution of Wall Street through the narrow lens of Lehman Brothers, spanning fifty years.
Fast forward to today, when my book comes out in paperback. Let's take a look at the headlines:
Alan Greenspan has just declared that Dodd-Frank reform legislation is a waste of time for the reasons listed above. The financial system is so "irredeemably opaque," he wrote in the Financial Times, that policymakers cannot hope to sort it out. Barney Frank (D. Mass), the former chairman of the House Financial Services Committee naturally disagrees. In the Financial Times, he mumbles on about the effectiveness of stress tests. But didn't it take most U.S. banks about thirty seconds to pass those in the wake of TALF?
Mr. Greenspan has a point.
But, forget opacity -- let's just look at the simple stuff.
Bernie Madoff -- in jail for perpetrating the biggest Ponzi scheme ever -- has declared that it was no surprise that J.P. Morgan stands accused of reaping $6.4 billion in funds from the scheme. The bank denied this, but Madoff said the bank "must have known." In other words, when given the opportunity to make money in dubious circumstances -- people take the money.
President Obama has ended his open war with Wall Street, making nice with the Chamber Of Commerce and promising that he will find ways to work with them, not against them. Why has he taken this unprecedented action? Could it be because he has realized that if employment does not rise and the economy is still faltering, he might not be re-elected in 2012?
Lloyd Blankfein, the CEO of Wall Street's favorite punching bag, Goldman Sachs, has just received a bonus of $18 million at the same time that one of his outside directors, Raj Gupta, the former CEO of McKinsey, is testifying that he gave inside information from Goldman board meetings to Raj Ratnaram, the CEO of hedge fund Galleon.
And what about Warren Buffett, considered for most of his 80 years the only straightshooter in the world of finance, and a crucial player in saving the world economy (well, Goldman Sachs) in 2008? Turns out he might not be quite so straightforward. His image is tarnished amid accusations that he acquired the chemicals company Lubrizol when he knew that his second-in-command and heir-apparent, Jeffrey Sokol, since let go, had just bought $10 million shares of the firm.
On Friday, Wall Street Journal readers were treated to this great headline: "Subprime Bonds Are Back". Whoopee! The very things that led Americans to treat their houses as ATMs are having a resurgence.
And on Monday, we learned that the Fed and US Treasury are engaged in a war with the FDIC over how many companies should be branded too big to fail. The Fed and US Treasury want less than ten; the FDIC wants three to four times that number. The moral of this is: Greenspan is right. It's all too complex for anyone to sort it out.
Meanwhile has anything happened to the housing Government Sponsored Entities, Fannie Mae and Freddie Mac, which blew up the weekend before Lehman did?
Yes: according to a front page article in Friday's New York Times. Although neither Fannie or Freddie has yet been reformed (that's on next year's agenda, apparently), their top six executives received over $35.4 million since their collapse in 2008. That's an awful lot of money for doing-well, nothing.
And all those dreadful losses reported to be happening in the hedge fund industry, swirling with rumors about insider trading after the closure of David Ganek's Level Global and three other hedge funds in the wake of FBI raids? Well, it turns out that hedge funds, while not outperforming the market, are still profitable -- thanks to those lovely fees.
Greed never dies; rules are made to be bent; the rich are indeed different from the rest of us -- and Shakespeare's fool was wrong. It would seem the whirligig of time does not, alas, bring its revenges.
Vicky Ward is a contributing editor to Vanity Fair and the author the New York Times Bestseller: The Devil's Casino, Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers (John F. Wiley & Sons).
Follow Vicky Ward on Twitter: www.twitter.com/VickyPJWard
Erik
http://eaprince.blogspot.com
None. That's like saying "the Titanic was too big to sink".
How many companies should be classified "too big to be allowed to fail"? (That's the original and correct phrasing)
Again, the answer is none.
If there is a size above which a company cannot be allowed to reap the harvest of its mistakes because of the damage it would do to the rest of us, then it should be prevented, by law, from exceeding that size, as a matter of national defense.
Erik
http://eaprince.blogspot.com
All the cuts to schools and other things round the nation are part of that revenge.
Why revenge on us? What did we do?
We elected and still elect the worst sort of people to office over decades now. We have no political life. We have a politics that lives only on TV. Little figures running around saying nonsense.
The corrupt bankers and politicians that serve them, are there because we tolerate them.
Elections are the least of it. By election time there is nothing for us. It is our fault for not participating in Democratic and Republican politics before and after elections. The lobbyists are busy every day, at work subverting the nation.
We are to blame for allowing them to have free reign. It is easy to blame big shots who corrupt the system. It is another thing to wrestle control from them.
Politics happens in person. We are the missing part of our politics. They can get others to be there for them and then go to dinner, while we pay the bill.
I really like this post from Vicky Ward. I like the title very much.
If we are sleeping, what do we expect? Elect Obama?
One thing I dispute is what you take as your 'moral of the story.' Not sure if it was meant tongue in cheek, or if that's what you really feel. You say:
"The moral of this is: Greenspan is right. It's all too complex for anyone to sort it out."
Sorry, but that is a very serious cop-out. Remember it was not by accident that it is hard for people to figure out. In many cases that may be justified. In the case of a reality that came into being because it was 'lobbied' that way, it's as if you are saying - well... they're smarter than the rest of us, so they just get to have their way with the law.
It's people like Alan Greenspan who allowed it to get this way. He copped out for ideology. Saying he was 'right' is also a cop out. Lack of ability to imagine anything else... does not mean that anything else is not available.
It's not too difficult to sort out - it's too dangerous, IMO. That's why it takes brave souls, and cop outs.
What are we going to do?
Some are in on Ryans plan.
Look at why Obama said he would pay 2% payroll tax from the general fund. So they can say they are paying more than they usually pay. Social Security is financed by the workers and they are the only ones who can benefit from it.
Look at why they have came up with very expensive preventive care and new patient checkups. Mammograms, colonoscopys, you name it and they will pay 100% for it. They don't even make your supplement insurance pay part of it. That will make it look like they are spending more every year for Medicare.
Medicare is even taking care of veterans who are hurt in the wars. VA should pay for that.
Most of Medicaid is said to be spent on nursing homes.
Trust me they want to inflate the costs.
Bhagavad Gita
All who have risen since the begining of time have fallen, either from the stray arrows of outrageous fortune, or by their own hand. The greedy and philandering of the American financial elite shall sufffer the same fate.
Be patient, "Rome wasn't built in a day!"
Would you fly on an airplane that is "too complicated to sort out"? You life depends on that airplane.
Well, the lives of every human being depend on the economy and financial systems that are, apparently, "too complicated to sort out".
That is absurd.
If true, then the thing to do is to start peeling away the complication and pregressively simplify the system until we DO understand it. From that point forward, nothing, let me repeat, NOTHING new should get introduced until (a) it is understood, and (b) t-e-s-t-e-d before flight.
Would you get on a 747 to Europe, if it had never been flown before? Would you get on it, if the pilot told you he didn't understand how it could fly, but he was pretty sure it would - except for an occasional blow-up and crash?
That's what our Repugnut friends want. Why? Because they make more money that way.
The states can put a big gottcha in the greed if they would all start up state public banks. (7 states are considering that already).
Starve Wall St's dishonest cash-hungry machine and keep that money in the states where it belongs. This will generate more jobs than the rich at the top have done and at least partially disarm those opaque thieves.
Now the corporations are sitting on Trillions of Dollars they will not reinvest . Causing high unemployment that is a major reason for the turmoil around the world today .