A closer look at some of the facts behind the current economic crisis and the impact that being an ignorant douche has on the recovery process and the future.
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Substantially revised on January 17, 2010 by Sterling Kekoa
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Below is a Tumblr blog post I ran across Thursday night (14-Jan-10) by a guy named Stowe Boyd, who goes by the clever moniker ‘Underpaid Genius’. In this post, he echos an abjurgation central to an op-ed piece in the New York Times written by Paul Krugman, titled Bankers Without a Clue, a sentiment that essentially says, “Wall Street bankers just don’t ‘get it.’” This opinion article in the NY Times is a reaction to the Congressional Financial Crisis Inquiry Commission hearings on Wednesday (15-Jan-10) which I happened to have watched on C-SPAN. Unless you had watched these hearings, this blanket condemnation of Wall Street bankers may not seem unwarranted or unreasonable. But I did, which is why I know some of the information Paul Krugman mentions in his editorial is inaccurate and warped to support this sanctimonious rebuke of Wall Street financiers.
If you read this article, you will notice that Paul Krugman of the NY Times considers Jamie Dimon, CEO of JP Morgan Chase & Co. to be one of these venal profligates of Wall Street. He takes what Mr. Dimon had said, “… [a financial crisis] happens every five to seven years,” completely out of context. In actuality, that particular statement was what Mr. Dimon’s daughter has said to him. It was from a conversation they had had and one Mr. Dimon recanted for the Commission in order to illustrate his general point, that because “things often go bad in life” risk management is critically important, not just for banking but for all businesses. This is far from the fatalistic indifference that Paul Krugman implied, “that bad things happen all the time, that it’s a fact of life and economic disasters are to be expected.”
Moreover, this broad accusation leveled at Wall Street bankers is not only absurd, it’s potentially defeating; first because it is patently false and second, it risks devaluing the credibility of everything else put forward as a result. Consider, for example, the fact that Jamie Dimon’s was approached by Timothy F. Geithner, the head of the Federal Reserve, when the crisis Wall Street began to unfold on in order to find out if JP Morgan Chase would consider buying Bear Stearns. Remember, Lehman Brothers had already gone belly up and Bear Stearns and share price had plummeted. Real failure was eminent. Fully aware of what the implications could be for the broader market and economy as whole if Bear Stearns were to go under, not to mention the added risk to his own company would be, Jamie Dimon agreed and swiftly worked out a deal stock swap. When you consider that the other option was bankruptcy, this was good thing for a lot people.
The end result was JP Morgan Chase provided the much needed guarantee of liquidity to covered all Bear Stearns trading obligations and also saved investors who owned Bear Stearns stock, itself, from taking a bath and losing everything. Now, by no means does this make Jamie Dimon and JP Morgan Chase above reproach, but it certainly goes along way in refuting claims that he is some cavalier Wall Street fat cat who is insulated from negative fallout of risk taken by his business by virtue of moral hazard. JP Morgan could have said no, and others did. It’s ridiculous to accuse Jamie Dimaon of such callous behavior. Instead, it would have been much smarter and far more useful if Paul Krugman had mentioned in his NY Times article that these banking CEO’s offered insight and suggestions on what aspects of their business that regulation should focus on that would be effective, such as the issue of technical “complexity” which Lloyd Blankenfein, CEO of Goldman Sachs, pointed out.
By soliciting the frustration people feel (which he also helps to foster), Paul Krugman deludes and diminishes the salient points he does make. This is truly unfortunate because one of them is exactly analogous to the hearings this past Wednesday, namely the Pecora Commission. The Pecora Commission was an inquiry that was made by the US Senate’s Committee on Banking and Currency into what had caused the stock market crash in October of 1929. It was the Commission’s findings that lead directly to commercial and investment banking reform, the Securities Act of 1933 (which should not be confused with the Securities Exchange Act of 1934). Those reforms are exactly relevant to our current situation and critically important to understand because it was the dismantling of those regulatory provisions that were, in fact, partly responsible for what contributed to our banking crisis. Among those laws were provisions to preclude the practice of underwriting unsound loans. Sound familiar, say, sub-prime mortgages that were repackaged into mortgage-backed derivatives? As much as I dread hackneyed aphorism, this one could not be more appropriate: Those who forget the lessons of the past are destined to repeat them.
Boorish crusades such the drive to recuse all Wall Street bankers of being clueless out-of-touch privateers are invidious and clouds the issue with inaccuracies and misleading details, making it more difficult for people to understand what is true. That said, it is the fact that so many people don’t seem to know very much about the recent economic meltdown and what lead to our present economic circumstance, and the fact that so many others don’t even care, that I find most disturbing. Is this why Stowe Boyd and the throng just like him so willing to jump on the “burn the witches” bandwagon? This is my little shop of horrors.
What I find so jarring is the fact that this kind of comment typifies the relentless tide of ignorance that seems so pervasive in public discourse, and demonstrates just how little people know about an event of this magnitude and importance, an event that has forever impacted everyone’s lives, for most in a negative way. I know, I know, I shouldn’t be so surprised. I am exceedingly aware of the sociological and psychological aspects that foment human stupidity, including apathy, but I can’t help it. It still stuns me, every time. Here in the U.S., the most educated society on the planet with arguably more resources and access to information than anyone else, an overwhelming number of American adults are shit fucking stupid. Seriously, I want to know why?
Even when it comes to the important shit, many of my fellow Americans are complete fucking morons. And though I don’t know this for a fact but I’ll put money on it, I think the older ones are the stupidest of us all – which throws that entire notion with age comes wisdom right out the freakin’ window. What a fat lie that is. Old people are incredibly stupid which makes a lot of sense since they hate queers the most, too. That’s absolutely true, but I’ll get to that in a blog post very very soon.
But never mind that now. The pressing question is, “Are you ready for some pie?” What a silly question. Of course you are.
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The Bankers Are Clueless
underpaidgenius:
Krugman suggests that the start of the Financial Crisis Inquiry Commission hearings — the government’s effor to figure out what the hell happened with the bank meltdown — shows only that the bankers still don’t get it:
- Paul Krugman, Bankers Without a Clue
Well, if you were hoping for a Perry Mason moment — a scene in which the witness blurts out: “Yes! I admit it! I did it! And I’m glad!” — the hearing was disappointing. What you got, instead, was witnesses blurting out: “Yes! I admit it! I’m clueless!”
O.K., not in so many words. But the bankers’ testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis. And that’s important: It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.
Obama’s economics advisors are the people who should listen to this, but the won’t.
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[my response]
The Bankers Are Clueless (But not nearly as clueless as the American public)
What a load of BULLSHIT.
Talk about a sweeping generalization! This is the kind of ridiculous flapdoodle about the financial crisis that’s been polluting the web by the bushel lately. It is complete and utter tripe. It also says something about the authors and the people who share it with others. It says that they are either just plain stupid and don’t really understand the “cause and effect” of this crisis, or they’re disingenuous, meaning they do know better but they’re deliberately disseminating specious information for dissembling purposes. In other words, they know for a fact what they’re saying is bullshit but they’re deliberately blowing smoke up your ass for another reason all together – and chances are pretty good it has to do with a political party’s agenda. I know right. Like that’s a big surprise to most of us!
People. Get this straight, please. One thing, and one thing only is at the root of every single market crash and massive bank failure as far back as forever. Do you know what it is?
Massively over-leveraged buying and selling of wildly over-valued assets. That’s it. The specific area of over-leveraged speculation hasn’t always been the same but the basic tenant that set Humpty-Dumpty up for a great fall is the same, each and every time. Go ahead. I dare you to name one that wasn’t.
As fun as that realization is, here’s the real kicker. The law permits people to engage in this activity. Yes it does and we call it a “free market” economy. But what everyone always forgets is that not everything in a free market economy is good, like monopolies for example. Monopolies are bad but they are a natural product of totally unregulated free markets. Obviously, monopolies don’t help anyone but themselves because they eliminate competition. So, some regulation is critical important if we want the free market to operate the way we really want it to.
What happened this time around was a direct result of an extended political environment that consistently favored deregulation. Make no mistake. It was the lack of regulation that permitted the kind creative sub-prime mortgages and allowed them them spread like wildfire; and it’s what made the subsequent derivatives packages also possible. But the fact is, there were no laws to prevent financial professionals from “re-purposed” these worthless mortgages into something that actually looked like they were worth something, or at least long enough to be able to pawn them off on gullible third party investors, most of whom where institutional investors. Now, throw in things like “credit default swaps,” which are basically a way of hedging against risk, and all the the other types of insurances and you got a big chain reaction just waiting for the bubble to burst.
And when it did, it was the financial institutions that had too many of those “non-performing” mortgages on their books, the ones who were stuck holding too many potatoes in this elaborate game of “hot potato” who ended up in dire straights. But, to say that ALL BANKS were and are clueless is completely asinine. All it demonstrates is that you clearly don’t seem to know what you’re talking about. Because, guess what? There were many banks that were not insolvent and still aren’t. BNP Paribas and JP Morgan Case & Co. (with $2 trillion in assets and deposits) are two who weren’t entirely clueless.
So….. either the jackasses who are saying stuff like the shit below, including those who are passing it on, are a bunch of fucking idiots, or they’re assholes who what you to believe something that’s not true. You decide.
No. The real problem is and was a lack of regulation because proper regulation could have prohibited these sorts of “highly speculative” financial derivatives. In fact, its not that hard to do. The law merely would have lay down a basic set of parameters, to state, for instance, that anything that falls outside a specific “income/asset to loan ratio” would be deemed a form of gambling and thus be prohibited. Easy.
Lack of regulation was the big problem, but this time we had another problem added to the mix. Specifically, had certain members of Congress not installed inept but political loyal factotums to be in charge of Fanny Mae and Freddie Mac the crisis could have been averted, or at the very least, brought to publics attention. This kind of political favoritism is nothing new in Washington, and just like FEMA and Hurricane Katrina, it proved to be disastrous.
And if that were not enough, certain members of Congress also helped to erode Freddie and Fanny’s regulatory capacity, which in turn rendered these agencies powerless to moderate the real estate markets they operated in. This was part of their intended mission and role as the ultimate arbiter of what ought to be considered “acceptable mortgages” as the principal market-maker of the US residential real estate credit market.
Do you really want to fix the problem? Then don’t be such a retarded douche to think it’s a banking problem because if you’re that stupid, you might as well blame in on the fact that the Earth is flat. Simp! No, if you want to fix the problem then find a way to eliminate stupid people because they’re the ones who fall for crap like this and end up sending crooked power-whores politicians to Congress. And guess who helps pay to get them elected, and reelected? Special interests, duh. If you don’t know that then there’s a lot you don’t know about modern government. Of course, it’s money that comes from those who love the idea that they can make a shit load of money in a highly speculative market with absolute legal impunity, and the assurance that when the bubble bursts next time, they’ll get bailed out once again. It would seem, from their perspective, smart to make sure there aren’t any pesky laws to prevent future speculation, now wouldn’t it?
The way you will know that lawmakers are serious about fixing this problem, you will see strict regulations on the books, governing “highly leveraged financial derivatives” are put in place. So far there’s nothing. And you don’t think this is not going to happen again, no matter which team has the football, the Republicans or the Democrats, then its a sure bet you belong in the “stupid” camp?
Here it is.
For the kind of situation of such glaring injustice, where a major bank will get bailed out while an underwater homeowner will get evicted and end up homeless; and one in which the level of chaos ended up wrecking the economy so the average working Joe ends up also losing his job as well – tell me, don’t you think YOU REALLY OUGHT TO BLAME THE PEOPLE WHO ARE TRULY RESPONSIBLE? Then BLAME THE POWER-WHORE POLITICIANS IN CONGRESS and the morons who believed their bullshit and voted their crooked asses into office because that’s who’s most culpable.
Americans got screwed royally by this crisis, and on top of it all, the American taxpayer was also given the distinct privilege of having to foot bill for it as well. Yet, as shady and as wrong as this trillion-dollar shell game was, the fact is, no one broke any laws. Doesn’t that strike you as just a little fishy? And you still don’t think that politicians, lawyers, and lawmakers aren’t somehow at the center of this? Really. It’s just the “the banks” who don’t “get it”. You’re such a media puppet aren’t you? I have news for you. You’re the one who doesn’t seem to have a clue.
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URI REFENCES
Below is a series of tweets I posted to Twitter in descending chronological order, including a comment made to me and my responses. Together, they reveal a simple insight into Andy Warhol I consider fairly obvious but it stands in stark relief to the insanely abstruse assumptions that swirl around Andy in an endless blithering vortex of axiomatic absurdity. 
Sterling Kekoa
