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  • Technorati: graph / links

    How it all happened, and why we’re still fucked


    by Sunny on 23rd March, 2009 at 5:43 am    

    There’s an excellent essay in Rolling Stone magazine this month about the financial crisis, from the top till now. An excerpt:

    But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more “business-friendly.” Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn’t going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

    The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. “By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market,” said Eric Dinallo, head of the New York State Insurance Department.

    I choose this bit to reinforce the point in my headline.

    The UK & US governments are in denial not only about the bad state of the financial markets, but also to which extent the very same people who got us into this mess are still hanging around. And by that I don’t mean Gordon Brown: because he is essentially a daft politico who couldn’t predict this mess was going to blow up in his face any more than the chief of Goldman Sachs could.

    It’s more that both the Democrats and New Labour, the very parties that should gain from such a catastrophic collapse in markets, are tied closely to these people through business links, political contributions and schmoozing. They don’t want to stiff over their old friends so they keep making excuses for their massive payouts. They swallow the rhetoric that these people need massive bonuses or they’ll go off somewhere else (where, to become butchers??).

    Hell, Boris Johnson is still trotting out the line that we shouldn’t raise taxes because wealth-creators will flee our shores? Who are these people Mayor? The very people who have fucked over our economy and demonstrated that it was built on a house of cards? If these people can leave the country so easily, then they probably aren’t creating any wealth.

    We’re fucked because the people who traditionally should be rising up in anger and forcing accountability don’t exist, at least in the UK. The United States at least has Jon Stewart. Here, they’re either coopted by the system (New Labour) or they can’t string together a coherent sentence in economics.

    Note that I’m ranting here for now. I think the liberal-left in general needs a serious kick up its backside to prompt some sort of an intellectual and strategic response to the financial crisis. Right now it’s abysmal.



      |     |   Add to del.icio.us   |   Share on Facebook   |   Filed in: Economy, Media




    24 Comments below   |  

    1. ceedee — on 23rd March, 2009 at 8:15 am  

      It’s only tweaking the ear of the barstewards but at least Mark Thomas (http://www.markthomasinfo.com/) is having a go…
      “The owner of the Daily Mail Viscount Rothermere is a non dom , so dodges tax in this country and it appears is domiciled in France for tax purposes. SO the owner of the Daily Mail is a tax dodging French man, the demo calls on the writers of the Mail to do their duty and stick it to VIscount Rothermere as sponging foreigner!

      “The Daily Mail is owned via a series of trusts , involving Bermuda another offshore tax haven… so Richard Littlejohn can get stuck into the paper too!”

    2. cjcjc — on 23rd March, 2009 at 8:58 am  

      Good article.

      Needless to say it’s not only those on the left who are outraged at the way the investment banks have managed to game the politicians.
      But then what chance did they (the politicians) have?

      And by that I don’t mean Gordon Brown: because he is essentially a daft politico who couldn’t predict this mess was going to blow up in his face any more than the chief of Goldman Sachs was.

      Erm, in fact GS sold their CDO’s very early on and took out insurance against eg AIG’s failure. Relative to the market their stock is back close to an all-time high. Given the AIG bailout they have in effect been paid twice.

      This site has good ongoing coverage:

      http://www.businessinsider.com/clusterstock

      And we are certainly fucked if all we have to rely on are millionaire comedians like Stewart!

    3. cjcjc — on 23rd March, 2009 at 9:02 am  

      I believe Goldman partners were the largest investment bank donors to your hero too by the way…

    4. Riz Din — on 23rd March, 2009 at 10:37 am  

      The f-bomb is dropped twice in a row, in economic articles! First, I see the title of Sunny’s post, then I read Felix Salmon’s latest blog on potential social revolution/uprising in America. He says:

      “In the other corner are the real people, the angry people, the unemployed people — and with them their elected representatives in Congress. They’re not interested in such distinctions any more, they’re not interested in what’s fair or what’s sensible. They saw their real wages stagnate for decades as the orgy of plutocratic self-congratulation reached obscene levels only to keep on growing. All they ever had was the American Dream: the idea that they, too, might one day become dynastically wealthy and join the overclass.

      Now, of course, that dream is shattered…They’re not interested in constructive solutions or in leveraging private capital or in the sanctity of contracts: fuck that shit. Those days are over. They want to see jail time, confiscatory policies, and worse.”

      http://tinyurl.com/d3ek8c

    5. Raul — on 23rd March, 2009 at 10:44 am  

      That was a good read. Things seem unreal, a global system that has been hijacked by crooked and unrepentant bankers who then proceed to subject the global public to the worst sort of patronizing spin.

      How come Goldman Sachs is all over Washington and how come seemingly smart folks continue to assault us with such ridiculous rhetoric to defend bonuses and bankers in this economic climate.

      The financial regulatory system, the administration and the media have totally broken down with the few calls for accountability being met with defiance and doomsday fear mongering, but doomsday for who, the public or bankers?

      Doomsday is already here for hundred of thousands of ordinary folks around the world who are being affected in very real ways and paying a huge personal price, they get no rescue yet the super rich architects of this collapse get away untouched with not even a whisper about accountability and to add insult to injury with bonuses, with governments on a seemingly single minded mission to transfer their unsustainable and reckless bets that today have junk value to the public.

      And all this to get credit flowing but by the time that happens who will be in a position to take credit. Surely the solution lies elsewhere than propping up cronies and ex colleagues in Goldman Sachs. These guys are merrily batting for themselves and everyone seems strangely paralyzed. And how can this guys be trusted with trillions of dollars after this debacle. So who is being rescued here exactly.

      There can be no better example of how a self serving and influential clique working furiously behind the scenes can compromise an entire system to cover their losses and get away with trillions of dollars of public wealth. And one thought this only happens in corruption infested third world countries.

    6. Riz Din — on 23rd March, 2009 at 11:06 am  

      Definitely agree that many of the bonuses and remuneration is way too excessive in companies that have been bailed out and would otherwise be bankrupt, but a part of me thinks the gvt is to blame for allowing it to go through in the first place, and then screaming and shouting when the public noticed.

      I would recommend veering away from a mob mentality calling for a lynching of the culprits, as it can surely wait until they do their last good deed and help us out of the crisis. Is not revenge a dish best served cold? Also, my understanding is that while some individuals are culpable the masses were hard working people who were not deliberately defrauding the masses, and it is more a question of problems with the system versus problems of players in the system.

      Indeed, before we go hanging the bankers from the rafters, we need to keep in mind that the taxpayer is now firmly on the hook. We cannot have a complete failure (I know, hasn’t it happened already?), and as much as we want to see people rightly punished, there is an inherent paradoxical problem in the solution, because it requires that we don’t hurt the bankers so much that they all completely quit the industry, leaving incompetents in charge of banks and assets that are now owned and backed by our good selves. Alas, this is not like a football team or a theatre production, where you have a good supply of substitutes and understudies ready and waiting to take over. As Sunny and Jon Stewart say, many of these guys deserve a massive cut in bonuses, and I’m not against it, but I do think that that if we overshoot on the punishment, it will just make things worse.

    7. Riz Din — on 23rd March, 2009 at 11:15 am  

      Over the weekend, we heard of a new US recovery plan. The BBC reports it will comprise of ‘500bn (£343bn) plan to encourage investors to buy up toxic assets.’

      ‘The “Public-Private Investment Programme” will purchase the troubled mortgages and securities that have been at the root of the credit crisis from banks.’

      I know nothing of the details, but I wonder whether the banks whose balance sheets this is supposed to clean up will want to buy these assets back with the new packaging of gvt support. Will that be allowed? Talk about an indirect subsidy!

      What would happen if the assets could be bought by Joe Public. Would this amount to the debt returning to the homeowners, effective a refinancing of their mortgages at lower capital value and at lower interest rates? That’s not a bad solution, me thinks, but I suspect my thinking it riddled with more holes than a piece of Swiss cheese.

    8. Leon — on 23rd March, 2009 at 11:27 am  

      We’re fucked because the people who traditionally should be rising up in anger and forcing accountability don’t exist, at least in the UK. The United States at least has Jon Stewart. Here, they’re either coopted by the system (New Labour) or they can’t string together a coherent sentence in economics.

      Hmmmm…how do you reconcile that with your involvement with New Labour at it’s higher levels via LC?

    9. Sunny — on 23rd March, 2009 at 2:23 pm  

      Hmmmm…how do you reconcile that with your involvement with New Labour at it’s higher levels via LC?

      I’m not doing anything on that. NL is not a monolithic entity.

    10. Riz — on 23rd March, 2009 at 2:39 pm  

      It’s much worse than we expected. Wikileaks latest documents reveal that Sunny was sidelined at the last minute by Fidel in favour of his brother Raul, and that he is now receiving hundreds of thousands from the Chavez regime.

    11. ad w a r e » Blog Archive » Pickled Politics » How it all happened, and why we’re still fucked — on 23rd March, 2009 at 4:51 pm  

      [...] R­e­ad the­ o­r­i­gi­n­al po­s­t: Pickled­ Polit­ics » How­ it­ all happen­­ed­, an­­d&#… [...]

    12. MaidMarian — on 23rd March, 2009 at 7:12 pm  

      ‘We’re fucked because the people who traditionally should be rising up in anger and forcing accountability don’t exist, at least in the UK.’

      Sunny, I say this with all respect. They don’t exist anymore because they are the ones by and large who went and bought houses and then spent a decade fecklessly trading those houses to each other at wildly inflated prices.

      The people you are talking about are the mythic ‘working class’ and their trade unions, yes? In 2009, that is a demographic so thin it is not true. I am assuming that you are not conflating ‘working class’ and ‘underclass.’ The underclass were angry in good times as well as bad - they probably are the least affected by the credit crunch.

      If anyone should be jumping up and down right now it is Mr £2m property who has probably shipped close to 40% of his property value in the past 9 months.

      If the people you are talking about were to ‘force accountability’ then an awful lot of them would have their BTL owning fingers badly burned. Many of the people you turn to are the same people who ramped up the property bubble.

      Yes - the people who got us into this mess are still hanging around, largely because those people, in no small part ARE the general public who took rising house prices as a given and acted as such. Not a palatable thought for those who want to blame Gordon Brown for every ill.

      You talk about accountability Sunny - you are living through it. Those who fecklessly inflated the property market are getting their fingers burnt. Now, if you think that accountability is the same thing as destitution…..

      On a separate point - the foul mouth and eccentric hero worship of an average comic really detracts from an otherwise interesting article. Were these things totally necessary to the point?

    13. Leon — on 23rd March, 2009 at 7:32 pm  

      NL is not a monolithic entity.

      Maybe so but it’s hardly a vibrant and diverse ideology now is it?

    14. Leon — on 23rd March, 2009 at 7:36 pm  

      It’s only tweaking the ear of the barstewards but at least Mark Thomas (http://www.markthomasinfo.com/) is having a go…

      Heh well said.

    15. Riz — on 23rd March, 2009 at 7:52 pm  

      The system is being held accountable in the sense that a massive liability (or loss) was created and politicians and policymakers are figuring out ways to allocate this to those able to bear it versus those who should bear it. If it was only a small group of reckless yahoos, we would let them go to the dogs and perhaps rightly so, but because the group is so large, it looks like we may just opt to inflate our way out of the crisis by printing money and eroding the value of money and debt. Everyone wins? Not quite. Those few people who have savings have already been punished by super low interest rates, and they could soon suffer from a burst of inflation down the line. Nice. That sends out just the right kind of signals for a sustainable system. Bah, this is a rigged game that lurches from crisis to crisis, each round of troubles sowing the seeds for the next debacle.

      I wonder about house prices and the erosion of wealth. While folk who bought homes recently risk negative equity and could really be up against it, most folks only own one property, so it doesn’t matter too much if it doubles in price because its thought of as a consumption good in the sense that they won’t sell it and switch to renting. I bet most of these long-termers treated the recent bubblicious gains as the frothy illusory profits they were, profits that were never going to be realised. They can take the ‘easy come, easy go’ attitude and watch the madness subdside.

    16. Riz — on 23rd March, 2009 at 7:56 pm  

      Mark Thomas needs to come back on the box. I recently subscribed to his podcasts on the economy on itunes:

      http://www.markthomasinfo.com/section_audiovideo/

    17. Leon — on 23rd March, 2009 at 8:11 pm  

      He does, gonna try and get to see his show soon, haven’t seen him for years doing stand up…

    18. MaidMarian — on 23rd March, 2009 at 10:16 pm  

      Riz (15) - ‘most folks only own one property, so it doesn’t matter too much if it doubles in price because its thought of as a consumption good in the sense that they won’t sell it and switch to renting.’

      Well it might not matter if you are one of the owners of said houses, but if you are one of the folks left with the fag end of the market and you don’t get the benefit of house price inflation then it feels rather more like it matters in fairness terms.

      I accept that houses are sort-of a consumption good, but those who took the piss in the housing market at the expense of the next generation are getting rather more consumption for their £ than later generations.

      The message is clear - millions must not enjoy home ownership so a few can have a cheap house.

      I recognise that some on here think I am being harsh - fair enough. However to my mind the wild distortions in the housing market are at the heart of many of the problems we see. My wife and I are left with (essentially) no property ladder, a bill for toxic debt run up on a property market we were not involved in and likely inflation because of all this. And these distortions have a generational divide.

      And in 2001 I do not believe that there was scope for politicians to reign in the housing market.

      Believe me Riz - it matters greatly if a house doubles in price if you are one of the people who does not own one.

    19. douglas clark — on 23rd March, 2009 at 11:21 pm  

      MaidMarian,

      I hear what you are saying, but contrarywise, the drop in house prices has to be a positive thing for those that are not on Sarah Beenys’ somewhat speculative Property Ladder. If house prices drop sufficiently that you can join in, possibly at a lower rate than rental, it ain’t all bad.

      There was, I think, an assumption, that property price inflation was inevitable. Nowt’s inevitable.

      We are already seeing the assets of the pretendy rich being sold at knock down prices. We are already seeing house price drops nationwide.

      My guess is that inflation will go through the roof, shortly, and that consequently capital assets compared to relative income, will become cheap. Which is bad news for older folk and good news for you young Turks.

      At least, young Turks with a job…

    20. Riz — on 23rd March, 2009 at 11:22 pm  

      Yes, apologies MM, I was purely talking about the balance sheet effect on existing homeowners. My personal belief is that the solution to excessively high prices is … roll the drums… low prices.

      I don’t believe houses are good investments for most people from a purely financial perspective, even if prices full a bit further, but if you are eager to own a home I hear HSBC is offering a 2 year fix at around 3%. With rents higher than such mortgage payments, the metrics look quite nice, and if inflation spirals out of control, you’ve at least hedged your borrowing costs and could be a position to enjoy large inflation on the asset (if the gvt’s money printing presses accidentally spiral out of control a la Zimbabwe). Of course with more sensible deposit requirements, it may only be feasible to buy a small property but it could be a good hedge against on the property ladder.

      If you are wondering why I hate property. One word: Detroit.

    21. douglas clark — on 23rd March, 2009 at 11:37 pm  

      …that maybe want to own your own home, rather than see it as a speculative asset.

      {Oops, this was supposed to follow on from my previous post.

      What Riz said in between, is what I think I think :-)

      Though the ownership arguement - that you have no ongoing outgoing fixed debt seems to me to be a worthwhile aim in itself.}

    22. Sunny — on 24th March, 2009 at 1:55 am  

      MM: They don’t exist anymore because they are the ones by and large who went and bought houses and then spent a decade fecklessly trading those houses to each other at wildly inflated prices.

      I was trying to refer here to institutions rather than simply houseowners.

      I also think we’re looking through a narrow prism. This affects not just house prices but pensions, jobs, wages and much more. I’m not that affect by house prices as I’ve not joined the property ladder, but I am worried about the impact the recession will have on my employment and earning prospects. for that, I have the bastards from AIG and Goldman Sachs to blame. Oh and Republicans. and the Labour govt.

    23. Riz — on 24th March, 2009 at 10:03 am  

      Sunny, I think our prism may be so much more narrower that we realise, that we seem to have forgotten that the market and progress develops in unexpected and unpredictable ways, and instead of creating the conditions for the magic of the market to work we have dangerously opted to throw everything and the kitchen sink at the problem, demanding clarity. You know, there is quite a bit of data pointing to a stronger economy than we expected (retail sales in the US and UK, US home starts and sales), and I do wonder if policy makers have even considered what happens if we go into a mini boom and bust because we can’t withdraw the stimulus so easily. I know it is a small risk, but because there is no mention of it, I fear we are overlooking it. Erring on the side of caution can quickly become excessive folly, just look at how Greenspan kept cutting rates ‘just to be sure’. What’s different?

    24. Riz — on 24th March, 2009 at 10:11 am  

      Who says Bloggers have no impact. Yesterday I heard that 50 cent was kicked off Stallone ‘The Expendables’ film cast after much blogger protest, and today I learn that Timothy Geithner just had ‘what we think may be the first ever conference call on the economic bailout directed at financial bloggers’ says Clusterstock.

      http://www.businessinsider.com/treasury-department-holds-surprisingly-calm-blogger-conference-call-2009-3

      It was short, but still…cool.

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