Wednesday, March 02, 2011

Response to Comments on Inside Job--03/02/2011

As I prepared thoughts on the comments from Tom, I exceeded the limit for a comment, so I am instead presenting it here as a (new) full post.

On the big screen excesses appear larger than life. Scale is lost.

The incentives for Wall Street execs have been outrageous for many years, and this continues to grow--this was partially addressed by Sarbanes-Oxley nine years ago (well it was exposed then, not stopped). That said, their armor is chipped away with each blow-up, and society is slowly building up the resolve to stand up against it. It is close to a miracle that the financial reform law was passed last year. The process is painful to (almost) all involved, but as Martin Luther King, Jr, said, the arc of the universe is long, but it bends towards justice.

The money culture on Wall Street is unchanged (hence the Wall Street II movie last year). I agree that the culture on Wall Street is toxic. This became clear in the hearings after the blowup, where brokerage firms were selling what they knew was crap to their customers. One noteworthy such broker was Henry Blodgett from Merrill Lynch, who was banned from the industry, and yet is "now the editor and CEO of The Business Insider, a business news and analysis site, and a host of Yahoo TechTicker, a finance show on Yahoo." Slowly consumers are wising up to the built-in conflict of this culture, as witnessed by the decline in the brokerage industry.

Wall Street is indeed working (and spending) hard to dismantle the financial reform law. When I was in DC last April lobbying for the bill, I was impressed that the Delaware Congressmen and staffers that I met put more weight into the voice of Joe and Jane Citizen than the lobbyists (or at least the Democratic Congressmen and staffers). I am hopeful that this very battle becomes a clear line between the Republican and Democratic Party, and helps to strengthen the Democratic Party, which I feel is required to properly balance necessary Wall Street regulation.

I disagree with Ferguson on some of his attacks on Obama's team. First, I feel that there is a vast difference between Greenspan and Bernanke. Greenspan is a libertarian, laissez-faire, and was staunchly hands-off on the regulation front. Bernanke, in my opinion, was very proactive in addressing the meltdown, much to the country's benefit. Summers doesn't do anything for me, however I generally like Geithner. Note that if you refuse to hire someone with advanced public and private credentials, the highly-paid and highly-incented financial wizards will be able to dance around you.

I do agree with Ferguson that Mary Shapiro's appointment by Obama to lead the SEC was an awful choice, a true choice of a fox to guard the hen house.

On the issue of greater concentration of financial firms, Ferguson failed to mention a major development. Each of the investment houses changed their charter to become bank holding companies during the meltdown, to be eligible for bailout funds, subjecting them to additional regulation. The law still needs to be adjusted to build in 'too big to fail' protections, likely a 'pay your share' fee to cover adequate insurance against such failures, fees which could well be large enough for large firms to force them to split up.

When I said that much of the information didn't surprise me, I didn't mean to say that I knew that it was all going on. However, as Mark Twain noted, history doesn't repeat itself, it rhymes. Much of the excesses were uncovered and documented in the bust, which was largely co-caused by Wall Street excesses.

The crap inflicted on us by the evils depicted in Inside Job was ultimately overcome by 1) significant actions by governments and central banks across the globe, and 2) basic economics, which calls for goods and services to be produced as needed by the world's population. Despite the gross mismanagement of financial firms, the world's economy has grown (after inflation) by 3.3% since 2007 (pre-meltdown).

I know that I am an optimist. I consider myself more of a 'glass half-full' optimist, than a 'rose colored glasses' optimist.

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