Friday, 9 April 2010


"the next frontier of disaster capitalism is: cleaning up after capitalism."

At what point does the hubris of the undeserving rich become so corrosive that it sparks a backlash that discredits capitalism altogether?

That's my question for Bob Rubin and Charles Prince, both formerly of Citigroup, when they testify before the Financial Crisis Inquiry Commission on Thursday.

Though first I'd put it this way: How'd you guys make so much money running Citigroup into the ground and leaving it a ward of the state?

Prince earned at least $120 million for running Citi for four years, during which time $64 billion in market value vanished. Rubin made at least $115 million (plus stock options) between 1999 and 2008, before the feds had to inject $45 billion and then guarantee $300 billion of the firm's liabilities to keep the place afloat.

Rubin told the Wall Street Journal in November 2008 that he was worth every penny -- and then some. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.

This sense of entitlement to the lucre from rigged compensation systems seems to pervade finance: Ken Lewis of Bank of America, Stan O'Neal of Merrill Lynch and Kerry Killinger of Washington Mutual (to name just three) walked away from the ruins as very rich men.

This pattern explains much about the crisis that wrecked our banks, left 15 million people unemployed, vaporized trillions in output, saddled government with crushing debt and shredded America's economic credibility.

(I was in Shanghai last week, and trust me, the Chinese are happy to copy our DVDs, but they don't view American-style capitalism as a model just now.)

At least Akio Toyoda apologized. Our masters of the universe feel exempt from accountability or shame.

The toxic mind-set of American financiers has emerged unscathed from the toxic assets they unleashed. Being Bob Rubin means never having to say you're sorry.

The mystery of the financial crisis is this: How could problems in a relatively small class of assets, such as subprime mortgages, bring down the economy?

Losses on the trillion or so dollars of subprime loans reached perhaps $300 billion. How could that sum threaten a $15 trillion economy that's fifty times larger? Let alone a global economy of $60 trillion? On its face, this calamity shouldn't have been possible.
So why was it? A big part of the answer is that this small poison in the system spread because of side bets and leverage.

New sectors of "derivative" finance, whose sole purpose was to gamble on the fates of these loans, sprang up. Supposedly savvy institutions borrowed big time to make these bets.

It's important to be clear on this: Borrowing heavily to go to the casino -- an activity normally scorned by decent people -- is the way Wall Street's "best and brightest" did their work.

Meanwhile, the ratings agencies meant to judge the soundness of the loans that backed these bets were too sleepy, lazy or compromised by the profits they made selling their seal of approval to do their job.

Beyond these shenanigans lies the real heart of darkness: the fact that a few thousand senior people across Wall Street could remain (or get) very wealthy even if the house of cards collapsed.
And this, in turn, was possible only because of pay practices that showered bonuses right away even if the mortgage-backed securities on which these bonuses were based were fated to implode.

And because the public ownership structure of major firms meant that all the borrowing and bets were done with other people's money.

Wall Street's old privately owned investment partnerships would never have wagered their net worth on so much risky junk.

In "The Big Short," a brilliant look at the crisis through the eyes of quirky, farsighted investors who bet against the conventional madness, Michael Lewis observes that the problem was the system of incentives that channeled Wall Street's workaday greed.

"What's strange," Lewis says, "is that pretty much all the important people on both sides of the gamble left the table rich."

"The CEOs of every major Wall Street firm . . . were on the wrong end of the gamble," Lewis writes, of the subprime implosion.
"All of them, without exception, either ran their public corporations into bankruptcy or were saved from bankruptcy by the United States government. They all got rich, too."

This is not how free markets are supposed to work. This is the scam the Angelides commission and Congress have to scream about -- and fix.

If you believe that intelligently regulated market capitalism is the best hope for spreading prosperity, it's essential to rescue the U.S. economy from Wall Street's "heads-I-win-tails-you-lose" perversion that threatens to discredit America's model altogether.

This is from ed-strong, a left-wing bloggers' clearing house. For  the names of   the thieves mentioned here we can easily substitute some of our own. For our native ace practitioner of disaster capitalism management we need look no further than our own socialist, son-of-the-fucking-manse, Gordon Snot,  I fucked it all up, I can sort it all out, Trust me, I'm a snot-eating lunatic; look, the banks already stole all your money but I'm giving them your future money, too. It's the right thing for the country.


Anonymous said...

Don't you just love the word "we" as in "we" will have to tighten our belts. and "we" are all in this together. Yeah well fuck you, heads they win tails "we" lose.I never fucked the bank/credit card/loan company. Never unlocked the equity in my property as in buy a car cash and pay for it over 25 years just ask Carol Vordeman finance expert. I also realise that its the rich what get the pleasure and the poor that get the blame. Its the same the whole world over ain't that a bleeding shame. Yes it is as the people in the PIIGS countries are going to find out in the very near future as they are going to pay for this greed fest not created by them but fuckers with red braces and now Justin Urquart smug bastard for his take on the money markets and where did the "basket of foriegn currencies" go? My income has dived from 76 Thai baht to the £ to an eye watering 46 since this financial fuck up not of my making but as "we" are all in this together no doubt Darling, Brown and Bliar won't mind sending me a few bob as a way of making up for their fuck up. On a lighter note the people here have more balls than people in the UK who would rather watch shit lack of talent shows before being evicted from their home than take to the streets as they are doing here now. The unelected Government has told them to disperse and go home they have told the government to go fuck themselves by taking over the TV stations. This has been going on for weeks and not only in BKK but all over Thailand especially up here in the frozen north Chiang Mai. We are in for an interesting few months I think.

call me ishmael said...

Yes, mr a, I was just thinking that, actually, listening to the midnight "news." Theoretically, we should be able to be even more forceful than the Thai people, there's fucking millions of us, should be better organised, more mobile but we won't be. There's the footy and the grand prix and that horrible wanker's back, at the golf, plenty there to keep people off the streets. Very epressing.

black hole sunset said...

It seems difficult to escape the conclusion that those "few thousand senior people across Wall Street", have engineered for themselves a state of Predator/Vulture/Monopoly Capitalism, a highly centralised and dictatorial Supreme Soviet of governing financiers, which operates solely at the expense of other peoples and industries.

There is, in their ambition to control and disposess, a filth and rottenness shared even by those at apparent extremes of the business and political spectrums. Rubin, Brown, our own Union Barrons; all are Rulling Class, deep down, with, in their grim, ugly selfishness, more in common with each other than those outside the bribery and kickback daisychain.

Erasmus said...

It is not the current bunch of thieving bastards who are the culprits for this horrible mess. It is their predecessors. For generation after generation they, like the Church, conned the punters by a belief scheme based on criminal falsehood and deceit.
The current mess was predicted by one or two thinkers in the '30s. Since then it has resulted in one or two medium "tremors", each one stronger than the last, leading up to this latest "earthquake". Unless a total overhaul of the world's financial system is undertaken, it will certainly happen again and again, with each occurrence racking up bigger and bigger Richter Scale values.
The biggest sin of all is that the ignorance of what money really is has blinded even those who "control" it.

call me ishmael said...

Survival tickets has long been my favourite definition, mr erasmus, of money, although the reality money explanation is useful, too and entertaining; survival tickets, a few have many and many have few, some have none, yet the whole global governmental system is predicated upon the worship of the few who have many and want more and not upon the relief of the many who have few or none. We see it on Cruelty TV, as well as in the Financial Times; the voluntary enslavement of the many, to the few, be they posturing, egotistical entertainers or greedy corporate fuckpigs like Sir Stewie Rose, the outcme is the same for their heedless victims, Ruin. These are the days. We are offered a choice of villainy and most of us sit, a sthough we were King Solomon, magisterially weighing the virtues of the contenders, even though thay have none.