But who’s the real criminal? It’s me, isn’t it?

by Daniel on September 22, 2011

Joris Luyendijk’s new project up at the Guardian is aiming to apply the methods of social anthropology to the financial sector in the City of London. He’s carrying out interviews in pubs and coffee bars with people at all levels and in different roles in financial services industry, to get a proper picture of how the social roles all fit together. So far, he has made at least one major discovery:

I know, I was just as surprised. I’ve been doing my own amateur social anthropology exercise too. By which I mean that I’ve got a Twitter account and some spare time, and as a result, have been collecting[1] prime specimens of banker abuse. So far, I’ve gathered that I, personally, have stolen from every single benefits claimant in England, and that Sir Fred Goodwin (crime: got a big pension, managed a bank poorly) is clearly a bigger criminal than Sir Anthony Blunt (crime: betrayed dozens of serving agents to Stalinist Russia). And, of course, during the recent London riots, dozens of variations on “who is the real criminal – the man who smashes a shop window and steals an iPod, or the man who gets paid a bonus?”

Because, at the end of the day, Dr Harold Shipman murdered 52 infirm old women in order to steal money from their wills, but bankers, get bonuses. Who is the real criminal, eh??

It is without any anticipation of popularity or agreement (or even any real hope of not being called an asshole on my own blog, although I must say that would be jolly nice if you were in the mood) that I tell you that I think this is all rather a pack of bollocks.

So read on …

Luyendijk’s qualified defence of bankers against the rage element in the Comment is Free community basically seems to hinge on the fact (which is basically true) that lots of people in the financial industry didn’t really have very much to do with the decisions that led to the current financial crisis. It’s actually a good point well made, and although I try not to rely on it too much in self-defence at parties, I do occasionally feel the need to point out to professional Northeners who are about to do a number about “the City of London”, that the only two banks to actually go bust in the UK were Northern Rock (based in Newcastle) and Bradford & Bingley (based in Bradford). Also requiring rescue and state funding were RBS (Edinburgh) and HBOS (Edinburgh and Halifax, though the decisions that really caused the damage were taken in Halifax).

But as I say, I don’t really want to rely on this sort of defence myself, because it’s a bit of a cop out for a number of reasons. The financial market system stands or falls as a system, and I think it’s a really bad idea to make anything important in your politics depend on blaming it for the crisis. Two reasons for this;

First, as I said three years ago, macroeconomic events have macroeconomic causes, not microeconomic ones. Bad, stupid products[2] like Option ARMS or subprime buy-to-let teaser mortgages, were not invented by the industry out of sheer cackling evil; they were invented because they were the only way to get the people into the houses, given how expensive property had become. This was, as Dean Baker keeps reminding us, a housing bubble first and foremost and a financial bubble second; we are in a recession basically because of the disppearance of a huge amount of household sector wealth.

How expensive property had become … this is one that I’d like to linger on, because it rather points out that the number of people who a) benefited from and b) causally contributed to, the bubble and bust is rather bigger than you might think. The “Location, Location, Location” crowd (which in one way or the other, means pretty much the entire British middle class) are in this one up to their eyeballs, and if they want to rage at “bankers” while sitting on their still-massive property gains, then I for one am not inclined to take them any more seriously than the man who eats sausage but won’t talk to the pig-sticker.

However, of course, there were plenty of people who didn’t own houses in the 90s and 00s, and who thus didn’t benefit from the boom, who are suffering as a result of the recession, including the benefit claimants from whose mouths I was accused of taking the bread. Even in this case, though, I think that making a big deal about “the bankers caused this crisis/stole from us/etc” is a big mistake.

And that’s basically for the simple reason that there is no hope for egalitarian politics if you are going to build it on such weak grounds. This was the lasting contribution of Jerry Cohen’s criticism of Marx. The demands of egalitarian justice are not based in some convoluted proof that the rich have in some way stolen from the poor. The case for redistributive taxation does not rest on bankers’ bonuses being stolen goods, or even on them being undeserved. If you try to agitate for egalitarian policies based on this kind of argument, you are never going to make a strong case, because in the first place, “bankers” didn’t actually steal that money, for the most part, and secondly, if you are giving all the agency to “bankers” then you are accepting the first premis of the “wealth creators” rhetoric, and this is going to destroy you, politically, across the business cycle.

There’s also an economic version of the same argument. The answer to the question “Hospitals, or bank bailouts?” is “deficit spending, you ass!”. Money for the banking sector bailouts hasn’t come out of the mouths of babes and Sure Start centres; the austerity measures were a specific and separable decision, made by people who ought to be held accountable for it.

So my basic message here is that economics isn’t a morality play, even in the face of a depression. Even morality isn’t a morality play, most of the time. I wasn’t actually responsible for the housing crash and nor were most of my mates. We didn’t close down your local library or put your student fees up; that was the coalition government who did that. In general, if you want to build a better society, the message from the more thinking and socially responsible element of the financial sector is “send us the bill and spare us the lecture”.

[1] Oh all right, “trolling for”

[2] For which there should be consequences for the people who sold them, just on an encourager les autres basis. Financial regulation is not a morality play, either.

{ 383 comments }

1

elm 09.22.11 at 4:55 pm

Bad, stupid products[2] like Option ARMS or subprime buy-to-let teaser mortgages, were not invented by the industry out of sheer cackling evil; they were invented because they were the only way to get the people into the houses, given how expensive property had become.

If this isn’t a morality play, why ascribe noble motives to the people who invented these products. “The only way to get the people into the houses” indeed — try “A good way to make more loans and make more money”.

2

mpowell 09.22.11 at 5:01 pm

I’m not really sure what the point of this is, but then I don’t really know the UK context. In the US context I would say that hatred of executive bankers is quite appropriate, even if it gets a little extreme in pseudo anonymous online comments. Even aside form their direct economic actions they are spending hundreds of millions influencing and corrupting our government to their benefit. That’s pretty odious. Responding more directly to your argument, I have a couple of points to make 1) There is a difference between saying that specific banks made specific decisions leading to the latest market crash and saying that the enormous rents produced by the financial sector have been increasingly distorting the economy over the past 3 decades or so leading to, on the one hand, reduced productivity, and on the other, increased vulnerability to this kind of crisis. The latter is a much more subtle argument but I also think much more accurate and much more damning. It’s not an atrios or kos style argument but it is an argument some prominent commentators have been making and, in different forms, since even before this crash actually took place. 2) I think there is plenty of room in an egalitarian argument for redistribution for more than just the argument that these bankers are generating huge levels of productivity but we should redistribute their wealth for fairness reasons. I think it’s also a potentially compelling argument for the significant percentage of the population with no apparent egalitarian instincts that the banking sector is extracting far more wealth from the economy than it is actually producing. This is a debatable point for sure, but I do think it’s worth pursuing. Both from a political perspective and also an efficient government perspective. Rent extraction is not usually an efficient arrangement.

3

Chris Bertram 09.22.11 at 5:01 pm

Lots of fair points there Dan, but allow me a bit of pushback … the fact that houses became so expensive is hardly unrelated to the fact that financial means were created which then allowed people to bid the prices up further. So what you call cause and effect rather depends on where you come in. Also the fact that such means were created owes a lot to deregulation, which in turn owes a lot to the power of the financial sector in the British economy ….

(To pile on the rhetoric a little bit, if the recent London rioters had been able lobby to get smashing windows and taking plasma telly decriminalized ahead of time, they wouldn’t be in the clink now.)

4

Daniel 09.22.11 at 5:06 pm

the fact that houses became so expensive is hardly unrelated to the fact that financial means were created which then allowed people to bid the prices up further.

I don’t really agree, (surprisingly) – the price bubble was policy-caused. In the early 00s, when I started covering the UK banking industry in serious depth, the main upward driver of house prices was simply the fact that (as base rate plummeted to the historically low level of 4%!) they were so, so damn affordable – remember that mortgage rates went from nearly 10% to about 5% on a simple, vanilla standard variable rate mortgage, basically halving the monthly payment. The product innovations were a response to, not a cause of, the housing boom (in Spain, where financial regulation was and is very strict, they still had a housing boom on 100% vanilla products).

5

ejh 09.22.11 at 5:13 pm

in Spain, where financial regulation was and is very strict

You may have to explain this

6

Henri Vieuxtemps 09.22.11 at 5:14 pm

Suppose you’re a soldier in a war, and your commander offers a bonus based on the number of ears you cut from local enemy sympathizers. So, you go, you cut some ears, you bring a necklace of ears to the HQ every Friday, you get some whiskey and cigarettes. Would you say that only your commander is to blame here?

7

ejh 09.22.11 at 5:15 pm

(I mean there’s a serious difference here between what the rules say and what actually happens. Serious, and blatant.)

8

Tancredi 09.22.11 at 5:18 pm

…the number of people who a) benefited from and b) causally contributed to, the bubble and bust is rather bigger than you might think. The “Location, Location, Location” crowd (which in one way or the other, means pretty much the entire British middle class) are in this one up to their eyeballs, and if they want to rage at “bankers” while sitting on their still-massive property gains, then I for one am not inclined to take them any more seriously than the man who eats sausage but won’t talk to the pig-sticker.

I don’t know the situation in the UK, but in the US it’s generally true that homeowners have taken their (massive) haircut, while the financial industry has with few exceptions not, and also, as in your post, takes great umbrage at the idea that that should be even considered.

9

OCS 09.22.11 at 5:18 pm

Anyone who begins his defense with, “Hey, at least I’m not a serial killer!” already has quite a hole to dig himself out of.

Seriously, though, I think anger at the financial sector is completely appropriate. As a sector it used its considerable political clout to avoid meaningful regulation, invented practices that inflated a housing bubble and inserted huge levels of risk into the system, all while reaping record profits on the way to crashing the economy.

Did you personally do any of that? I doubt it, and I’m sure you’re a nice guy. Did the vast majority of people working in the financial sector personally make those decisions? No, they were just doing their jobs, trying to make a living. And I don’t think “bankers” did it all by themselves. They had plenty of help from the politicians, regulators, and free-market theoreticians. Most of whom, I’m sure, are also nice guys.

But people do have a right to be angry. They should actually be a lot angrier than they are — angry enough to force meaningful changes in financial regulation. But at least in the US, that doesn’t seem to be the case.

10

cian 09.22.11 at 5:19 pm

Do you not think that part of the loathing might be in part caused by the bankers own lectures for the past, oh, 15-20 years on how bloody brilliant they are.

11

Daniel 09.22.11 at 5:28 pm

10: yes. I warned against this at the time, but I was Cassandra to Sir Fred Goodwin’s Hector. Or something.

12

Barry 09.22.11 at 5:29 pm

Brad DeLong actually covered housing prices vs. mortgage rates on his blog, and
concluded that that only accounted for a small part of the rise in house prices (in the USA).

13

William Timberman 09.22.11 at 5:30 pm

Not your fault in particular? That I’ll concede, since a) it seems awfully unlikely that you’re Beelzebub hisself, and b) this mess of pottage had a whole industrial kitchen full of cooks, and c) I know nothing whatever about you.

However…. The degree of guilt in situations where the better angels of our nature have not been much in evidence depends solely on power. To the degree that this power was distributed, everybody can claim a piece of the mitigating circumstances pie.

That said, we’re still gonna hate bankers, if for no other reason than this: They don’t have to live in the shit they dumped on us. We do.

14

Barry 09.22.11 at 5:33 pm

OCS: “And I don’t think “bankers” did it all by themselves. They had plenty of help from the politicians, regulators, and free-market theoreticians. Most of whom, I’m sure, are also nice guys.”

We’ve watched horrific catastrophe unfold, and we’ve seen most of these guys (and they’re generally guys, McMegan notwithstanding) have no problem with it, so long as they stay comfortable. They are not nice guys; they just have clean office jobs, and have to actually pull a trigger and get brains all over their nice clothing.

15

Rich Puchalsky 09.22.11 at 5:33 pm

I really don’t know anything about the situation in the UK, but in the US, it appears that austerity mania and the sentiment that we must bail out the banksters and let everyone else go hang are not exactly unconnected, or propounded by two different sets of people.

And arguing that the banksters, while personally incompetent to do their jobs, were helpless victims of the real driver of events, the middle class screaming Location, Location, Location… well. That’s like blaming the people driving cars for global warming. Yes, cars contribute to global warming. No, people (in the US, at any rate), mostly have no real individual alternative to car use, in most areas, and operate within a system that other more powerful people created.

16

Dave 09.22.11 at 5:34 pm

macroeconomic events have macroeconomic causes

Well, okay, but isn’t it the case that The World’s Twenty Largest Banks constitute a macroeconomic force, even if they’re run by a small number of bankers? Signs point to yes…

I’ll also say that it had never been my impression that Option ARMs, subprime mortgages, and property values (??) were themselves responsible for worldwide financial system collapse. It had never been my impression that those things could by themselves pose a systemic threat. Care to show the data on that point? The collapse, I have been led to believe, was caused by failing derivatives the banks sold back and forth to each other. All the guns in the circular firing squad fired, and dying banks and bankers were given public money while they complained about the public’s lack of fealty to them.

I mean, it’s not criminal, but it’s not like it isn’t a crime.

So, where shall I send the bill?

17

Nick 09.22.11 at 5:35 pm

Plenty of blame to go around but i think a self-defeating middle class policy demand has to be at the core of this in the uk:

1. House prices must not go down, and preferably go up.
2. We need affordable houses.

There is an intergenerational element to it. Parents sitting on a lot of paper housing wealth who are worried that their children can’t afford to get on the property ladder. Its a situation of individual ignorance and collectuve madness. The banksters and the government delivered on the policy… for a time.

18

Gareth Rees 09.22.11 at 5:36 pm

Hmmm… just because most bankers are innocent of contributing to the crisis, doesn’t mean that all of them are innocent.

After all, someone at Northern Rock decided to issue lots of “self-certified” mortgages using money the bank didn’t have, in the hope that it would later be able to borrow enough to fund them.

19

Barry 09.22.11 at 5:38 pm

Dave: “Well, okay, but isn’t it the case that The World’s Twenty Largest Banks constitute a macroeconomic force, even if they’re run by a small number of bankers? Signs point to yes…”

Considering that they’ve taken us closer to Great Depression II than *anything* has since WWII, I’d classify them as a macro-macroeconomic force.

20

ejh 09.22.11 at 5:43 pm

On the original post:

a. Money for the banking sector bailouts hasn’t come out of the mouths of babes and Sure Start centres; the austerity measures were a specific and separable decision, made by people who ought to be held accountable for it

- aren’t the costs of bank bailouts actually a large and direct component of the deficits which governments have sought to address by austerity measures? Directly in the case of (at least) the UK and USA, and indirectly in many other cases? So “hospitals or bank bailouts?” isn’t just a rhetorical comment, it’s been how the collapse, and subsequent austerity drive, has actually played out. (Bear in mind too, perhaps, that governments have been essentially obliged to go along with this even when they did not agree with it, as for instance in Spain. Austerity has been insisted on. By the financial markets, who need to be reassured of other people’s prudence. )

b. isn’t it actually reasonable enough to complain about institutions which behaved individually and collectively with great recklessness and irresponsibility, driven by greed and arrogance, and were then saved by the public in return, when the consequences for many of the members of that public have been (and will be) rather grim? Who wouldn’t complain?

c. isn’t the real point about the bank bail-outs that, whether they were necessary or not – and let’s assume they were, which seems reasonable – once they occurred, there can be not more moralising about the debts incurred by other people? There can’t be any “you ran up this debt by lax tax collection”, or “you ran up this debt because you went in for financial speculation as a national craze” or “you ran up this debt because your government was best mates with the people who incurred it” or “you ran up this debt because your economy was based on property speculation” or anything. After the bail-outs, there only question is practicality, what gets people out of the hole they’re in. There’s no more moral lessons to be applied. (Apropos of which, I really hope banks are no longer sending amusing “we would like to remind you that you are banking with us, not us with you” letters to undergraduates who exceed their overdraft limits. Though I bet they are.)

But this isn’t what happened, is it? Far from it. People who are at the most, tangentially responsible for economic problems – on the grounds that the government of their country acted wrongly – are having moral lesson dumped all over them. Which leads to another point:

d. isn’t the very essence of social justice that we do not treat poorer people more harshly than wealthier people? That we absolutely do not apply rules and standards, be they legal or moral, to them, that we are unprepared to apply to their better-off peers? Now, given that this hasn’t happened, isn’t happening and is highly unlikely to start happening, isn’t there actually a certain amount of social justice involved in pointing at the banking fraternity and saying “what about them, the bastards?”

I appreciate there’s a lot of silly things said about bankers, and I also appreciate that stigmatising whole professions is unjust, ignorant and potentially nasty. (I also appreciate that some comparisons of some people with bankers are silly and stupid, though perhaps not as many as you do.)

But on the other hand, you know, try being a public sector worker at the moment. Try having it assumed on a daily basis that you’re a lazy cheat sponging off the public and then living out an early retirement on a glorious pension. And try being kicked for it, by the press and the government, and then when that doesn’t work, having them come back and kick you harder. That, I suspect, is really no fun at all.

21

Tim Wilkinson 09.22.11 at 5:44 pm

I don’t get the point of this troll-post – surely the bad arguments should be either amusing or ingenious?

22

Steve LaBonne 09.22.11 at 5:48 pm

But on the other hand, you know, try being a public sector worker at the moment. Try having it assumed on a daily basis that you’re a lazy cheat sponging off the public and then living out an early retirement on a glorious pension. And try being kicked for it, by the press and the government, and then when that doesn’t work, having them come back and kick you harder. That, I suspect, is really no fun at all.

You needn’t stop at suspecting it; that’s my reality and yeah, it’s not at all fun.

23

elm 09.22.11 at 5:48 pm

I don’t get the point of this troll-post – surely the bad arguments should be either amusing or ingenious?

Tim, do you refer to the (purportedly) bad arguments he makes a strawman of for the first 4 paragraphs or his own bad arguments for the remainder of the post?

None of them amused me but a few of the bad arguments presented in this post are novel and rhetorically effective.

24

MPAVictoria 09.22.11 at 5:50 pm

What the hell. Did I end up at the Atlantic or something by mistake? Is Megan Mcardle posting under a pseudonym now?

25

MPAVictoria 09.22.11 at 5:53 pm

“But on the other hand, you know, try being a public sector worker at the moment. Try having it assumed on a daily basis that you’re a lazy cheat sponging off the public and then living out an early retirement on a glorious pension. And try being kicked for it, by the press and the government, and then when that doesn’t work, having them come back and kick you harder. That, I suspect, is really no fun at all.

You needn’t stop at suspecting it; that’s my reality and yeah, it’s not at all fun.”

Testify.

26

elm 09.22.11 at 5:56 pm

If you try to agitate for egalitarian policies based on this kind of argument, you are never going to make a strong case, because in the first place, “bankers” didn’t actually steal that money, for the most part, and secondly, if you are giving all the agency to “bankers” then you are accepting the first premis of the “wealth creators” rhetoric, and this is going to destroy you, politically, across the business cycle.

Perhaps that won’t let you make a case strong enough to get approving nods from economists, but that’s not the point. That sort of characterization is propaganda and populism — it’s an exact counterpoint to propaganda about wealth creators and job creators. In fact, you could see the characterization as theft as punishing them for that propaganda in the downward part of the business cycle.

Additionally the claim that bankers “didn’t actually steal that money” seems to rest on your definitions of theft. If you mean it in the sense of criminal prosecutions, then it’s empty. Call it what you will, but it’s still expropriating enormous rents on other people’s labor by virtue of your powerful position in society. The fact that the people responsible won’t be punished for it doesn’t make it more acceptable.

27

ScentOfViolets 09.22.11 at 5:56 pm

First, as I said three years ago, macroeconomic events have macroeconomic causes, not microeconomic ones. Bad, stupid products[2] like Option ARMS or subprime buy-to-let teaser mortgages, were not invented by the industry out of sheer cackling evil; they were invented because they were the only way to get the people into the houses, given how expensive property had become.

This makes no sense. If I read this correctly, then apparently Daniel also believes oil companies engage in their unsafe practices because that’s the only way to get gasoline into the cars of the automobile owning practice.

It’s also flat-out wrong (at least as the analysis applies to the United States).

I’d also note that at the end of the day, these malefactors have killed far, far more than 52 sweet little old ladies.

28

elm 09.22.11 at 6:08 pm

SoV: Can’t you see how the motives of the financial industry are necessarily pure and honorable? They just want to “get the people into the houses”. The fact that they took handsome profits from it is not worth mentioning (apparently) — it’s probably an overlooked byproduct of their benevolence.

29

nick 09.22.11 at 6:24 pm

Then there’s the influence on the future shape of the economy.
And therefore on its knowledge and power relations.

30

BruceJ 09.22.11 at 6:26 pm

No, the Option ARM’s and subprime loans, the ninja lonas, the interest-only loans, etc were not done “to get people into the houses”.

(in fact the main selling point of most of the oans, particularly in the periood right before the crash, was that homeowners could rapidly flip the houses and make enormous profits)

They were done because the fees charged for originating those loans were an enormously profitable revenue stream, because the loan originators NEVER carried any of the risk; they were bundled and sold to the investment banks almost immediately; fraud on the part of borrowers and originators was not only rampant, it was an essential part of the business plan.

Then the banks sliced and diced the mortgages into CDO bonds, and paid the ratings agencies to rate them highly, again, fraudulently (it’s an open question whether the ratings agencies were criminally fraudulent or criminally incompetent).

Towards the end, when the loan originators had literally run out of people to loan money to, the bankers started selling ‘synthetic CDO’s, which were all the lower tranches of the regular CDO’s they couldn’t sell, resliced and diced and served up to the ratings agencies to magically have AAA tranches again.

On top of that, thanks to lax regulation; in particular the actions of Phil Gramm, and his amendment to exempt Credit Default Swaps from regulation, a form of insurance. CDS’s were not under the regulatory regime that governned insurance, in particular the capital requirements and leverage limits of regular insurance, turning the entire economy into a hideously over-leveraged monster teetering on the backs of people with mortgages they could never in their lives pay off.

Go read “The Big Short” by Michael Lewis for the gory details.

Fundamentally there was rampant fraud at all levels of the economy in the boom years leading up to the crash, and the bankers were in the thick of it.

They deserve every bit of the blame they’re getting.

31

nick 09.22.11 at 6:36 pm

32

marcel 09.22.11 at 6:46 pm

OK, CTers, what have you done with the real d-squared, and who is this imposter?

Also, OCS @ 9 wrote:

“Seriously, though, I think anger at the financial sector is completely appropriate. As a sector it used its considerable political clout to avoid meaningful regulation, invented practices that inflated a housing bubble and inserted huge levels of risk into the system, all while reaping record profits on the way to crashing the economy.”

We’ve set up an institution called a corporation that legally has a single goal, profit max according to any and all legal means.

In the short run, or series of them, corporations called banks were very effective at that. At least until they weren’t. Before that happened, working toward the same goal, they were very effective at getting the law changed to allow them to better achieve max profit. After that happened, working toward the same goal, they were very effective at getting themselves bailed out, the better to achieve max profit.

Where’s the problem? Not with these particular organizations, nor with the people running them. We could put the whole lot before a firing squad, and before too long, there’d be another lot to replace them given the rich stakes involved. It’s an institutional problem. Whether the problem is the way an LLC is defined, or that they are legal, or something even deeper I’ll leave to those at higher pay grades.

33

mrearl 09.22.11 at 6:49 pm

Ah, the credit default swap, that marvelous device for insuring things you don’t have an insurable interest in, i.e., gambling. Not finance. Not banking. Not putting people in houses. Gambling, that’s all.

34

Bernard Yomtov 09.22.11 at 6:50 pm

Money for the banking sector bailouts hasn’t come out of the mouths of babes and Sure Start centres;

Wherever it came from, it led to huge bonuses for individuals who on the whole don’t seem to have done a very good job (other than at holding up governments) of running their businesses, with tremendous negative consequences for lots of people.

Macroeconomic forces? Funny, when the economy is booming, and bank business along with it, no one turns down a bonus because, after all, it’s just macroeconomic forces, and nothing they’ve really done.

35

Bloix 09.22.11 at 6:57 pm

I’m sure I’m being naive in assuming that Daniel doesn’t already know this and is intentionally ignoring it, but here goes:

1) There was a bubble in housing prices. This means that people bought houses, not to live in, but because they believed that the house they bought would appreciate faster than any other asset they could invest in. The appeal of such appreciation was multiplied many-fold because houses are the easiest and most common investment for ordinary people that supplies large amounts of leverage. The ordinary buyer had no appreciation of the risks of leverage but well-understood its benefits. There was a lot of activity in buying up, flipping, and trading houses that had nothing to do with the need for shelter. This activity made a lot of money for a lot of people – real estate agents, mortgage brokers, inspectors, title insurers, and lenders.

2) Housing prices could not indefinitely go up faster than the rate of inflation because eventually there would not be enough buyers who had the income to qualify for the mortgages needed to on the higher home prices. Therefore, in the absence of “creative” financing, the run-up in housing prices would soon have stabilized and perhaps dropped a bit.

3) Mortgage brokers and lenders therefore created mortgage products that were designed to allow people to buy houses that they could not possibly pay for based on their income – balloon mortgages, teaser rates, interest only loans, even negative amortization.

4) If the mortgage lenders had had to hold the risk of these loans, they would never have made them. But they didn’t, because they could sell the loans to the banksters, who then packaged them in their creative products and sold them off as AAA-rated securities to insurers, pension funds, and the like. After the banksters took their large cut off the top, the money from these investors funded the loans to the ignorant buyers who were put into the creative mortgage products by the petty crooks who worked for the mortgage originators.

5) Without the market in mortgage-backed securities made by the banksters, there would have been no money to fund the creative mortgage products, and thus no possibility of a bubble anywhere near the size of the one that eventually burst. The whole point of the mortage-backed securities market was to keep the bubble inflated. Obviously it couldn’t go on for ever, but it was very, very profitable while it lasted.

6) The banksters either were world-class idiots or they were well-aware that the mortgage-backed securities they were selling to clueless institutional buyers were trash. As we know that they are not idiots, the only possible conclusion is that they were intentionally passing off trash.

People who peddle fake goods are usually considered to be crooks. But banksters who knowingly peddled enormously high-risk securities, while claiming that they were as safe as US treasuries, are walking around with billions of taxpayer dollars in their pockets. They own Congress and the administration. They write the tax code and dominate the Federal Reserve. After smashing up our retirement accounts, destroying our pension funds, wiping out the savings of millions of people who bought into the rising market, and putting any number of us out of work, they sneer and pontificate and preen and strut their way across the major cities and TV screens and high-end resorts of all the world.

The only justification for the investment banking industry’s existence is that it does a better job of allocating investment capital for productive purposes than any other method of doing so. What we’ve just seen is that, far from allocating capital efficiently, the banksters allocated capital in a grotesquely wasteful manner for year and year, a manner that just happened to put huge amounts of that capital into their own individual pockets while leaving the institutions they worked for at risk of insolvency. And when that risk came to pass, the obscenely rich individuals suffered not at all, while the government bailed out the institutions.

So. Please. I don’t know anything about you personally, and I’m sure that you’re a wonderful fellow who loves dogs and is charming at parties. But the industry you are part of is a force for evil in the world. Everyone who is not dependent on that industry for a living knows it.

36

Gaspard 09.22.11 at 6:59 pm

So out of exit, voice, loyalty, you choose loyalty. Fair enough.

An interesting question, is not “who is a criminal?”, but how to you justify working in a sector that is clearly part of the problem and not of the solution, or do you think your presence and that of others with your views in the sector is a moderating force somehow? If so how?

37

tomslee 09.22.11 at 7:00 pm

I do love the all-too-rare dsquared posts, but ejh #20 is the star of this show.

38

Billikin 09.22.11 at 7:01 pm

There are thousands of real criminals among bankers and mortgage brokers. The S&L crisis in the U. S. produced around 1,000 convictions, IIRC. And the current crisis is much bigger and badder. Why, some bankers in the U. S. are having to resort to forgery in order to foreclose!

39

Bloix 09.22.11 at 7:08 pm

As Billikin points out, the banksters also own the Justice Department and the SEC.

40

chrismealy 09.22.11 at 7:15 pm

dsquared is making a really narrow point and inspiring a lot of confusion. We should take him at his word: just take all the money from the banksters. Without the money they’ll lose interest in the heads-I-win-tails-you-lose system that causes so much trouble.

41

straightwood 09.22.11 at 7:22 pm

Daniel, the outraged finacial sector professional, seems to believe that the kind of sophisty and flim-flam that served to cheat institutional chump clients will be persuasive to the average CT reader. Clearly, he is mistaken.

The financial sector attracted large numbers of bright, greedy and ethically dysfunctional individuals. When these people were given incentives to maximize their own wealth at the expense of society, and even their own employers, they jumped at the chance. They have escaped financial and legal sanction, but they will not escape the condemnation of those they have harmed.

42

P O'Neill 09.22.11 at 7:26 pm

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of the financial sector, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual financial sector profits of the society as great as he can. He generally, indeed, neither intends to diminish the public interest, nor knows how much he is diminishing it. By preferring the support of his own financial centre to that of foreign centres, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the better for the society that it was no part of it. By pursuing his own interest he frequently diminishes that of the society more effectually than when he really intends to diminish it.

43

IM 09.22.11 at 7:28 pm

“dsquared is making a really narrow point “

The point being? Hate the game, not the player?

44

ezra abrams 09.22.11 at 7:31 pm

your post is full of logical flaws
Just because someone calls a banker a crimminal, doesn’t mean that they call a murderer of infirm old women a saint
As to Mr Blunt, that was a long time ago – surely you must have enough knowledge of psychology to know that it isn’t fair to compare immediate concrete things (I lost my job, a banker got a bonus) to distant less concrete things (my grandfather didn’t like blunt the traitor)

I don’t know the uk, but here in the us, lots of ordinary people did really, really stupid things, and lost their homes, and are living in cars as a result.
The bankers, and people like carly fiorina and hurd, get bonuses.
Lets be clear about the crime: marzillo packaged what were widely known, within his bank, to be fradulent loans and they were sold by JPM BAC GS etc
It JPM etc didn’t know the loans were fradulent it was thru willful exercise of blindness; at a certain point, you have to take responsibility for due diligence.
So my take is that the bankers in teh us were crimminally negligent, at best, and they got tax payer (TARP) bonuses, while ordinary people lost their homes

so to sum it up, hatred of bankers seems appropriate

45

duck-billed placelot 09.22.11 at 7:33 pm

Yes, the real shame is that people working in a sector that, at the very least, was a major cause in the massive destabilization of the economy that ruined the economic/life plans of a ridiculous number of people (see: unemployment rates), the real shame is that people working in that sector are being blamed and shamed. Of course, if this public condemnation is too much, you could always pursue a different career path, encourage your children to pursue different career paths, etc.

46

leederick 09.22.11 at 7:45 pm

I think D2′s basically right. The problem isn’t that banks went bust; the problem’s that the government saw fit to have the taxpayer carry the loss rather than wipeout their shareholders and bondholders. It’s the decision to infuse new capital into the banks from the government’s balance sheet, rather than than just appropriate equity and refuse to pay bondholders that’s the cause of austerity measures.

47

Dipper 09.22.11 at 7:52 pm

a couple of points on the UK.

Property prices here haven’t gone down that much. Certainly not like the early 1990′s. Northern Rock and B&B were at the fore-front of buy-to-let lending. The wholesale market became concerned that if there was a house price crash, then they would go bust, and they acted in anticipation of that by withdrawing wholesale funding. Game over.

RBS effectively went bust because they bought ABN, and acquired a large exposure to American mortgages, so it was the US market did for them.

48

Omega Centauri 09.22.11 at 7:58 pm

I think the blame goes much broader, at least in the US. Here we created a culture of greed, of getting something for nothing, (actually of getting a lot for nothing). At one end of the scale, we had a million wannabe Donald Trumps, following some shyster’s how to get rich in real estate playbook, flipping. Then we had realestate agents, and associated personnel, like home inspectors and loan officiers getting in on the game, and trying to extract as much as they could while the getting was good. On the top we had the banksters. All of these people exerted political pressure to change the rules in their favor, in some/many cases with great success. Others made money promotting the riches through greed culture. So we now have a great reconning going on. But, it seems the higher up the greed pyramid an individual was the less reconning is required.

49

elm 09.22.11 at 8:00 pm

I don’t know the uk, but here in the us, lots of ordinary people did really, really stupid things, and lost their homes, and are living in cars as a result.
The bankers, and people like carly fiorina and hurd, get bonuses.

Yes, but the wealthy malefactors have had their feelings hurt. Who can really say which group has paid the worse cost?

50

Dipper 09.22.11 at 8:00 pm

and there’s another aspect to the UK debate. The Labour government lauded the city, congratulated themselves for their own management of the Financial sector, and borrowed against what they thought were the proceeds that would roll in over the next twenty years (after all Gordon Brown had “abolished boom and bust”). So the UK Labour movement has a vested interest in blaming the bankers.

51

Dipper 09.22.11 at 8:07 pm

and another thing.

As a Professional Northerner, I’d just like to point out that as each sector of manufacturing industry departed the UK leaving derelict cities behind the government stated that this was the Free Market speaking, that this was all for the best, and that it was the fault of the workers for “pricing themselves out of the market”. Then when Banking, the industry of the south, went bust, the government said that this was a strategic industry and had to be supported. Demonstrating that the previous actions of governments were based round a class-hatred of workers, not a genuine economic belief. So this hatred of the bankers is partly the regions getting even.

52

Dipper 09.22.11 at 8:13 pm

I assume we’ve all read Michael Lewis’s “The Big Short”, or “All the Devils Are Here” by Bethany McLean and Joe Nocera? Even I, a banker, had no idea of the scale of it, and the completely brazen nature of the industry. It’s hard to see how anyone can take notions of the supremacy of an unregulated free market seriously after this.

53

Phil 09.22.11 at 8:16 pm

“Who’s the real criminal?” is a stupid question, but the reason it’s stupid is that it’s a rhetorical question expressing a point of view that’s assumed to be shared in a hyperbolic and incoherent form, essentially to make the speaker feel better. So I think it’s a bit of a soft target from your standpoint. The point of view itself is a lot less ridiculous: it’s essentially that Sir Fred and his fellow geniuses at HBoS have done a lot more harm to a lot more people than the scallies who raided Cash Converter in Salford, and that the latter are being treated a lot more harshly – and that this isn’t right.

What’s actually to be done about it is another question. But I think the perception that large numbers of people’s lives have been seriously affected for the worse by decisions taken by members of the tribe of ‘banker’ – facilitated by members of the tribes of ‘regulator’ and ‘politician’ – is not at all ridiculous, & in fact basically correct.

54

Bloix 09.22.11 at 8:49 pm

“The demands of egalitarian justice are not based in some convoluted proof that the rich have in some way stolen from the poor.”

This is true. It is not a demonstration, however, that the rich do not steal from the poor.

55

Henri Vieuxtemps 09.22.11 at 8:57 pm

The unjust steal the just’s umbrellas.

56

William Timberman 09.22.11 at 9:16 pm

HV @ 51

Which will not, however, shield them from lightning bolts. Quite the contrary.

57

johne 09.22.11 at 9:16 pm

“…[T]he number of people who a) benefited from and b) causally contributed to, the bubble and bust is rather bigger than you might think….if they want to rage at “bankers” while sitting on their still-massive property gains….”[they can go jump in the lake.]

Explain, please. At least in the US, a large number of people, middle-class and otherwise, are now responsible for properties now worth much less than the mortgage they owe the banker, with no prospect of that changing anytime soon.

58

skidmarx 09.22.11 at 9:30 pm

Dr Harold Shipman murdered 52 infirm old women in order to steal money from their wills,

So he waited until they were dead before stealing their money. And a man with only 52 victims is the real criminal? Not only are you a card, sir, you are the whole pack.

59

Johann tor 09.22.11 at 10:20 pm

This doesn’t really advance the discussion, but I just wanted to say that this was a very fine piece of writing.

60

michael e sullivan 09.22.11 at 10:43 pm

ejh@20, the financial markets have not insisted on austerity at all, at least for the US and UK, countries with their own currency and most of their debt exposure denominated in that currency.

Financial market insistence on austerity would look like rising bond yield spreads between your debt and some other baseline. This is what we see in Italy and Spain, who have their debt denominated in a currency they do not control. But the US and UK bond yields are at historic lows, and they were already very low and not rising before austerity measures were taken.

If the stock and bond markets both dropped (yields rose), and inflation expectations rose (TIP spreads in the US), that would be a market calling for austerity. Bond yields dropping is basically the market crying for bonds, crying for the government to increase deficits so as to provide more bonds, or for central banks to print more money to raise aggregate demand.

The only large countries who have had austerity forced upon them are in the eurozone. Nobody has forced the US or the UK to adopt these policies, except those who seem to control the political agenda. Hardly anyone in power takes seriously the idea that bigger deficits or looser money could help generate growth or alleviate suffering, even though the financial markets could hardly be sending a stronger signal that they want to see one or both of these things.

61

TG 09.22.11 at 11:27 pm

So my basic message here is that economics isn’t a morality play

Certainly the banking industry and its captive regulators have hewn to that story since 2008; I’ve never seen two groups (or one, considering the revolving door) more reluctant to acknowledge the economic concept of “moral hazard.”

Also, if economics isn’t a morality play then why are you so quick to ascribe altruistic motive to the peddlers of sub-prime mortgages with that “only way to get the people into the houses” sob story? The financial services industry was doing it for the profits, and immediately shoving off any risk on the buyers of the mortgage-backed securities (and ultimately, when the grift collapsed, on taxpayers).

A confidence man may prey on the ignorance, stupidity and greed of his marks; that doesn’t make him an honest businessman. Individual bankers can be fine people, but the culture of the industry as a whole is rotten to the core.

62

aa 09.23.11 at 12:27 am

You and your mates don’t feel responsible for anything.

Actually, people are aware of that in a general way. It’s been made rather clear.

63

maidhc 09.23.11 at 12:31 am

I’m not sure than looking at Guardian commenters is going to give a representative sample of the British public.

64

The Raven 09.23.11 at 12:38 am

“The greatest evil is not now done in those sordid dens of crime that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed, and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voice. “–CS Lewis

65

The Raven 09.23.11 at 12:42 am

Adding to that thought, no you aren’t the man who gave the orders and wrecked the system. But you participated and benefited, and that makes you complicit.

66

James 09.23.11 at 1:01 am

Let’s see where finance is culpable.

First, debt and money markets and institutions are hopelessly opaque. Every financial economist knows that this is a problem. It is the industry’s fault for not becoming transparent. Lack of transparency is one of the main reasons why the financial crisis got so big.

Second, remuneration incentives in finance were/are very perverse. The industry is responsible for setting up these incentives.

Third, as noted above, the industry is lobbying hard to stop reforms. To the extent it succeeds, it is responsible.

Fourth, it is the industry’s job to manage risk. It failed. It is professionally negligent (perhaps not a moral failing?, though I am not so sure).

Everyone in the industry makes a contribution to how the industry as a whole behaves. Not rocking the boat isn’t an excuse. You are right. You guys are assholes.

67

Daniel 09.23.11 at 1:02 am

I think Justin’s #20 is a perfect example of what I’m talking about. If you want to make the case for redistributive taxation dependent on bankers being bad people, you will fail. If you want to make the case for fair and just treatment of the poor in society dependent on bankers being bad people, you will fail. If you want to make the case for the provision of a decent level of public services dependent on bankers being bad people, you will fail.

In general, if you want to make egalitarian politics dependent on a moral case that the rich don’t deserve their riches, then you will fail. I include by citation the life’s work of G A Cohen. I agree entirely with all Justin’s points about the world and disagree wholly with his arguments for them.

The case for taxing “bankers” is much simpler than that. It rests on the simple moral principle – you have, he needs. Trying to make it rest on something else is always going to end up in trouble.

– aren’t the costs of bank bailouts actually a large and direct component of the deficits which governments have sought to address by austerity measures?

governments all over Europe have indeed used this bullshit excuse. It shouldn’t be any part of egalitarian politics to help them get away with doing so.

68

Daniel 09.23.11 at 1:06 am

Or perhaps, more succinctly and more provocatively, the fact that if you’re serious about egalitarian politics you shouldn’t be making it dependent on a thesis about ownership of profits, means that if people are so totally hung up on theses about bankers (or capitalists in general) being criminals, it probably isn’t egalitarianism that motivated them in the first place.

69

straightwood 09.23.11 at 1:10 am

Let’s not talk about “bad people,” a ridiculously broad subject. Let’s instead talk about bad conduct in the financial industry. Creating toxic financial instruments then deliberately misrepresenting their characteristics so as to rip off clients is very bad conduct, and it is the root cause of the richly deserved opprobrium directed at Daniel and his self-pitying, overcompensated, and unrepentant colleagues.

70

ScentOfViolets 09.23.11 at 1:20 am

I think Justin’s #20 is a perfect example of what I’m talking about. If you want to make the case for redistributive taxation dependent on bankers being bad people, you will fail. If you want to make the case for fair and just treatment of the poor in society dependent on bankers being bad people, you will fail. If you want to make the case for the provision of a decent level of public services dependent on bankers being bad people, you will fail.

What are you on about? Justin said no such thing. Let me paraphrase: If you want to make the case that bankers should be treated as justly as the poor, should suffer the consequences of their actions as do the poor and so on and so forth, then you’re tapping into a large throbbing vein of public sentiment.

Don’t misread what other people write.

Oh – and one more thing. Cops often complain that they have a bad reputation because of a few bad apples, and that mot cops are good cops. That excuse doesn’t fly with most people, because by protecting bad cops they become bad cops as well. If you don’t want to be tarred by the same brush as the financial industry as a whole, then I suggest you vigorously denounce them instead of being apologetic and dismissing all the bad consequences as either being the work of just a few bad apples or the result of vast impersonal forces.

71

Ebenezer Scrooge 09.23.11 at 2:25 am

If I understand Daniel correctly, his reasoning is as follows:
1. Straight consequentialism: morality be damned. (I don’t buy this, but I’ll rent it.)
2. We’re all egalitarians on this bus. (I buy this.)
3. Cohen has shown that there is no egalitarian utility in hating the bankster. (Never met the cove. I’ll rent it.)
4. Therefore, hating the bankster is a waste of time or even worse, counterproductive. (Logically entailed by #1-3.)

Fine by me, since I’m always happy to play a consequentialist on teevee and I don’t know Cohen from Katz. But without a goodly dose of moral opprobrium, how then will DD string up a few banksters, pour l’encourager les autres? They won’t volunteer for it, and indeed, might even resist it.

72

ckc (not kc) 09.23.11 at 2:54 am

We only did it ’cause you let us – it’s your fault.

73

polyorchnid octopunch 09.23.11 at 2:58 am

Well, really, when you get right down to it, you can go back to Smith and realise that the real problems started when we decided that people moving money should be able to make more money than people making things.

After all, all true wealth comes from making things.

We need to bring back usury laws. ISTR that Smith suggested eight percent, as ten percent was the best rate of return one could reasonably expect from making things. When you privilege lending money over making things, guess what happens? People stop making things. You can run on for a while shuffling the paper, but eventually the lack of real wealth creation (via making things) comes back to haunt.

74

polyorchnid octopunch 09.23.11 at 3:02 am

Oh, and by the way… the analogy using “most cops are good” is right on the money. When “good” cops help protect the bad cops, they become bad cops. To be completely honest, I’m pissed at the banking industry (any my country’s banking industry is considered a paragon; I live in Canada). However, there’s lot of other cohorts and institutions that deserve opprobrium too… legislators are right up at the top of the list alongside their rich buddies.

75

liberal 09.23.11 at 3:15 am

D^2 @68: “In general, if you want to make egalitarian politics dependent on a moral case that the rich don’t deserve their riches, then you will fail.”

LOL! Moral case? It’s an economic case. Most of the wealth of the rich is just accrued economic rents.

76

liberal 09.23.11 at 3:20 am

D^2 @69 wrote, …the fact that if you’re serious about egalitarian politics you shouldn’t be making it dependent on a thesis about ownership of profits…

Except most of it isn’t profit but rent.

77

Ken Schulz 09.23.11 at 3:29 am

Bad, stupid products[2] like Option ARMS or subprime buy-to-let teaser mortgages, were not invented by the industry out of sheer cackling evil; they were invented because they were the only way to get the people into the houses, given how expensive property had become. – Daniel, original post
In the early 00s … the main upward driver of house prices was simply the fact that (as base rate plummeted to the historically low level of 4%!) they were so, so damn affordable – Daniel, #4

Nobody goes there anymore, it’s too crowded – Yogi Berra

78

tomslee 09.23.11 at 3:46 am

@polyorchnid octopunch. This word “paragon”. It must be something like “too slow to get in on the action”?

79

Dr. Hilarius 09.23.11 at 4:01 am

I started investing in single-family homes (for rentals) in 1994. This was with very little money, me being one of those unsophisticated lunks who thinks he has a better understanding of housing than Wall Street. This gave me a front row seat to the whole bubble. In 1994, I could not get a 20% loan to value home equity loan on a rental house that I owned outright. The banks said it was too risky, not being owner-occupied. Flash forward a few years and my mailbox was jammed every day with increasingly bizarre loan offers. No equity, no problem. Five year ARMS at 150% of value, just sign here. Claim that an investment property is a second home, who’s checking. We can make it happen!

BruceJ @ 30 is on the mark, pointing out that the loan officers got big commissions on loans without regard to default risk, as did the originating bank. Washington Mutual, when it was a local bank, held most of the mortgages it originated. As a national bank it would loan anyone on anything. Then it all goes bust. The shareholders get zip. ( My own dear mother lost $60K.) Mistakes were made but who among all those very smart bankers ever could have predicted any problems caused by originating loans certain to fail?

But I’m delighted to report that just today Chase, that bank that swallowed WaMu’s corpse, offered me a home equity loan for 125% of value. Once as tragedy, again as farce.

80

polyorchnid octopunch 09.23.11 at 4:10 am

Actually, it really means that the finance minister we had under Chretien actually took his job as steward of the economy seriously… and since he was a self-made billionaire (made all his money in shipping; he took Canada Steamship Lines and turned it from a sinking enterprise into a going concern) he actually personally understood how all this stuff actually worked. I’m talking about Paul Martin, for people that aren’t familiar with Canadian politics.

When the Canadian banking industry came knocking in the nineties asking to be able to get in on the action, he told them to go stuff themselves. ISTR that the impetus was permitting the Royal Bank of Canada to merge with the Bank of Montreal. They cranked up the poutrage through the business press (we need to get big so we can compete in the world market!), but that all went away when he told them “oh, you want to compete, then? Great, tell you what… you can have your merger, and I’m going to let the world’s banks compete on a level playing field here for Canadian’s banking business.” That pretty much shut them right up.

When the Conservative Party of Canada won in 2004, they immediately moved to relax the banking regs. That would’ve been the impetus of Flaherty, the new Minister of Finance. I can say a lot about Flaherty, but the big one is that I can’t believe the people of Canada gave him the job after he cooked Ontario’s books as Finance Minister under Ernie Eves (that’s without going into the voters in his riding… what the hell is wrong with those people?). If I’d been the CFO of a corporation and I’d pulled the stunt he did during the Eves campaign while say publishing an investor’s prospectus… I’d’ve been charged, convicted, and incarcerated.

Anyway, simply put, yeah, too slow; by the time the legal framework was in place after Martin got sandbagged by the corporate press here in Canada (that means the Globe and Mail above all others, for those that know about how shit works here) they just didn’t have enough time to get into serious trouble before the whole house of cards fell into the shitter.

81

Mitt 09.23.11 at 5:04 am

This reads like someone who profits off the slave trade saying “well.. I never OWNED slaves.” No you didn’t own slaves or in this case steal people’s money (or retirement benefits, etc), but your a cog in the wheel. Grow a conscience and get an honest job, but don’t waste the time of the people who your industry has screwed in the name of keeping their fraudulent schemes alive with government capital.

Sincerely,

A Man with an Honest Job

82

Jim Buck 09.23.11 at 5:19 am

‘Sir Anthony Blunt (crime: betrayed dozens of serving agents to Stalinist Russia)’

No he didn’t! The Daily Star invented that calumny. Blunt’s greatest feat as a spy was in supplying vital information to the Soviets about Wehrmacht tank deployment before the battle of Kursk. He deserved his knighthood for that.

83

hidflect 09.23.11 at 5:45 am

“Professional Northener”… Yes, I am thank you. And my friend over here? Well, you’d call him a slitty eyed, slope face, seeing how you revealed you like to classify people into groups.

84

ejh 09.23.11 at 5:50 am

What are you on about? Justin said no such thing. Let me paraphrase: If you want to make the case that bankers should be treated as justly as the poor, should suffer the consequences of their actions as do the poor and so on and so forth, then you’re tapping into a large throbbing vein of public sentiment.

Don’t misread what other people write.

Quite.

I mean really. If you want other people to bother, and you go out of your way to ask them bother, make the bloody effort to bother yourself. Or don’t bother in the first place.

85

john b 09.23.11 at 6:15 am

Then when Banking, the industry of the south, went bust, the government said that this was a strategic industry and had to be supported.

As Daniel points out in the original post, the banks which went bust and had to be supported were all in the north; the banks of the south were all OK.

86

Henri Vieuxtemps 09.23.11 at 6:44 am

It rests on the simple moral principle – you have, he needs.

Heh, interesting. No consideration for merits whatsoever, eh? Very radical philosophy, I must say. Even in Stalin’s Russia a coal miner who finished the five-year plan in two would get to go to a luxury sanatorium.

87

Understudy 09.23.11 at 7:48 am

“Explain, please. At least in the US, a large number of people, middle-class and otherwise, are now responsible for properties now worth much less than the mortgage they owe the banker, with no prospect of that changing anytime soon.”

But of course you understand the mortgage losses that are driving the banking crisis are being caused by millions of middle-class Americans walking away from their mortgages that are worth more than their houses? The wealth transfer went from wall street to property developers and owners, with banks and GSEs left holding the bag …

88

mcarson 09.23.11 at 7:56 am

All feelings aside ( I am a bankers daughter) there were laws broken. Bankers lied, for money. Bankers got money they were not entitled to for making loans that were against the law, and they walked away with the money and other people bailed them out and other people ended up in upside down mortgages. Yes, those who fell for this were stupid, trying to get something they shouldn’t have tried for. But they were trying for a house, a neighborhood, a place for their kids to grow up in. The bankers lied, cheated, forged documents and got away with it.

Bankers have the same problem doctors do – doctors let other doctors operate drunk, people died, they got sued. Bankers let other bankers cheat, people lost money and the bankers just walked away.

All we need is a few honest bankers to agree that Mr. Countrywide should go to jail. That the people supervising the Robo-signers should go to jail. If we saw that just SOME BANKERS believed in the rule of law, this would all go away.

There is no other area in life where you can damage a person, a neighborhood, a country and get away with it like this. At least if you found yourself in a war you could shoot back.

Bankers know math. They understand reality. They, more than anyone, know how wrong this was. Just admit it. Be a banker we can trust. Be somebody who follows the law, tells the truth, does the right thing. Not the easy thing, but the right thing. All you have is your honor. Show some, let us see it.

89

ajay 09.23.11 at 9:12 am

I do occasionally feel the need to point out to professional Northeners who are about to do a number about “the City of London”, that the only two banks to actually go bust in the UK were Northern Rock (based in Newcastle) and Bradford & Bingley (based in Bradford). Also requiring rescue and state funding were RBS (Edinburgh) and HBOS (Edinburgh and Halifax, though the decisions that really caused the damage were taken in Halifax).

“But what about AIG Financial Products, the London-based arm of AIG whose lunatic CDS trading decisions were largely responsible not only for the collapse of AIG but for the entire financial crisis of 2008?” I asked.
“Shut up,” explained Daniel.

90

ajay 09.23.11 at 9:18 am

“And hang on a minute,” I continued, “I as a British taxpayer now own 43% of Lloyds because the British government had to bail it out in 2009. And Lloyds’s headquarters is in London. Lloyds have been putting it about that the only reason they needed a bailout was because they took over HBOS the year before, but that’s not true; they’d have been bailed out even without HBOS. So that’s one London-based financial institution that collapsed – and arguably caused a lot of the whole damn mess in the first place – and one that needed me to keep it from collapsing.”

“shutupshutupshutup,” Daniel added.

91

Torquil Macneil 09.23.11 at 9:24 am

Shorter Daniel: hurrah for egalitarianism, but you’re not getting any of mine!

Most of the CT regulars are very quiet on this thread. I wonder why? Imagine for am moment that it had been written by Megan McArdle and … KABOOM!

92

Daniel 09.23.11 at 9:31 am

I mean really. If you want other people to bother, and you go out of your way to ask them bother, make the bloody effort to bother yourself. Or don’t bother in the first place.

charmed, I’m sure. In actual fact, I did make an effort. Now I’m making an effort a second time. However I am afraid that the supply of effort is finite, and therefore the greater effort I’m making to understand your point is going to mean a reduced effort to be polite about your passive-aggressive, truculent whining.

But on the other hand, you know, try being a public sector worker at the moment. Try having it assumed on a daily basis that you’re a lazy cheat sponging off the public and then living out an early retirement on a glorious pension. And try being kicked for it, by the press and the government, and then when that doesn’t work, having them come back and kick you harder. That, I suspect, is really no fun at all.

This doesn’t actually exhibit much evidence of having made an effort to read the post. It’s just a more or less autopilot rant on an unrelated topic. It’s got 100% nothing to do with my post; since my topic was specifically that I thought blame games were silly and nasty politics, I rather resent being accused of them.

You see, Justin, this really sums up your approach to politics and it’s small-minded and mean, which is probably why it’s so desperately unsuccessful, and why this attempt to tap into a vast vein of popular anti-banker sentiment hasn’t worked.

isn’t there actually a certain amount of social justice involved in pointing at the banking fraternity and saying “what about them, the bastards?”

It just sums it up for me. What you’re really interested in, consistently, is pointing at people and saying “what about them, the bastards?” Everything else is a means to that ultimate end. No, is the answer. Pointing at people and calling them bastards makes precisely zero contribution to social justice of any sort.

It’s completely counterproductive as well, because if you spend long enough pointing at people and telling you that they’re your enemy, then after a while, they are going to believe you. And then you are screwed, because they have all the money and power, and you’ve just explained to them that you don’t want to have anything to do with them.

If you treat politics as a blame game, then you are probably going to lose, because you start with a massive handicap in the form of the c20% of the population who can always be convinced to blame their problems on foreigners. Since they are a given for the right, they don’t have to do much work in setting up trade unions and public sector pensions to take a lump more of the blame. This is what I mean when I say that if you actually care about egalitarian politics (rather than about having someone else to blame for your problems) then you really can’t base it on the weak foundation of someone else’s presumed criminality.

This is only one step up from the socialism of fools. People just seem to have a compulsion to turn something that should be a simple matter of redistribution through the tax system, into a search for moral vindication or something. But if you try to motivate your politics this way, you really shouldn’t be surprised when people also start being jealous of teachers’ holidays or firemen’s pensions. Egalitarianism and socialism have to be about solidarity and society, not us-and-them.

93

otto 09.23.11 at 9:34 am

Surely DD is explicitly saying that the needy should be “getting more of his”.

94

Daniel 09.23.11 at 9:46 am

89: Lloyds TSB was actually headquarted in Edinburgh! (that is a great way of winning banking sector pub quizzes rather than a substantial objection; the decisions were indeed all taken in Gresham Street). But I am more inclined to give them the benefit of the doubt with regard to the HBOS thing; without that deal, they would have been in a similar position to Barclays – ie, requiring more capital, but with some decent chance of being able to raise it from sources other than the government. The point is though, that it’s really difficult to make this into a tale of how a defined group of naughty people (and preferably naughty people who can be identified in numerous ways as being “the enemy”) did bad things. Unless you’re prepared to totally deny agency to a lot of people who actually had it.

90: Shorter Daniel: hurrah for egalitarianism, but you’re not getting any of mine!

I don’t think the second part of that is a remotely fair summary, as I said quite clearly (and repeated it in the final paragraph) that I’m in favour of redistributive taxation, and I am indeed so in favour of it that I think it’s a good idea irrespective of whether there’s a crisis happening that you can blame bankers for. “Send me the bill”, I said. I am even so keen to see tax rates raised on people like me that I am prepared to save you the effort of composing a Sunday School lecture about it.

95

Torquil Macneil 09.23.11 at 9:47 am

People just seem to have a compulsion to turn something that should be a simple matter of redistribution through the tax system, into a search for moral vindication or something.

Quite right, it really is this simple and it is amazing that people have been making such a meal over it. Let’s just simply re-distribute through the tax system and everyone can get along lovely!

96

Torquil Macneil 09.23.11 at 9:52 am

“I am even so keen to see tax rates raised on people like me that I am prepared to save you the effort of composing a Sunday School lecture about it.”

And the fact that it is vanishingly unlikely that the level of redistribution you want to see (the profession of which which absolves you from any blame for the misery being inflicted on the poor by the profligacy and greed of people like you) is just beside the point? What can you do? It would be silly to give away what the state won’t take, wouldn’t it? Even if a dozen families could live on your salary?

Go on, show us you mean it, give away half of your wealth and income (after all, you will still be a rich man). If you need directing to the people who need it (I know you have read about them, but I have a feeling you don’t meet too any), I will be happy to help.

97

Daniel 09.23.11 at 9:53 am

It’s also just struck me that people who want to play blame games ought to ask themselves what they end up saying about the case of Greece, where it actually was benefit claimants, pensioners and (particularly) public sector workers who caused the crisis. Do you want to be saying that therefore the Greek crisis should be dealt with by hitting those people hard? (If so, the letters column of Bild has a space for you). Or do you want to say that Euroland is a community, and that although German taxpayers and bondholders are more or less entirely blameless, they are the people with the resources to solve the problem and therefore they ought to solve it?

98

Torquil Macneil 09.23.11 at 9:54 am

” Do you want to be saying that therefore the Greek crisis should be dealt with by hitting those people hard? “

How else is it being dealt with?

99

Daniel 09.23.11 at 9:57 am

I don’t think that something which actually existed as recently as thirty years ago and still happens in a number of countries can really be described as “vanishingly unlikely”.

And even if it is “vanishingly unlikely”, then it’s still going to be vanishingly unlikely if I beat my breast and rend my garments shouting “mea culpa, mea maxima culpa”! If your initial premis is the utter impossibility of egalitarianism, you’ll forgive me if I’m not terribly interested in what conclusions you draw about the future of egalitarianism.

100

ajay 09.23.11 at 10:05 am

The point is though, that it’s really difficult to make this into a tale of how a defined group of naughty people (and preferably naughty people who can be identified in numerous ways as being “the enemy”) did bad things.

Not true; what you should say is that it’s really difficult to make this into a tale of how ONLY a defined group of naughty people did bad things. Failure has a thousand fathers but that doesn’t mean that it’s impossible to name any of them. Lots of people in the financial industry committed fraud and this helped cause the crisis. Lots more people were, at the very least, criminally negligent in their risk management, and that helped the crisis grow. The point about the banker-hatred is that the people who were criminally negligent don’t really seem, to the average punter, to have suffered any consequences as a result, and don’t seem to think that they did anything really wrong – as your article points out – and therefore there is the terrifying possibility that they will do it all again quite soon and cause another crisis.

the case of Greece, where it actually was benefit claimants, pensioners and (particularly) public sector workers who caused the crisis.

They caused it by being paid too much money? Talk about denying agency…

101

Zamfir 09.23.11 at 10:08 am

So we can’t hold individual people accountable because the problem is larger than them. I guess I agree.

We can’t hold the system accountable, because it has lots of OK people in it who don’t deserve it, and because holding systems accountable doesn’t do much in the real world. I can buy something like that.

But isn’t the conclusion that finance is a largely unaccountable operation, that does make mistaken and/or immoral decisions?

Seems like the conclusion should be that the financial sector can’t be given too much control or power over other people’s lives. Not sure if anger helps there, but would it hurt?

102

Daniel 09.23.11 at 10:18 am

They caused it by being paid too much money?

No, by repeatedly rioting and striking when anyone tried to do anything about it. Greece got to where it is because successive governments used the EMU interest rate windfall to avoid facing up to tough political choices. But Greek benefit recipients, pensioners and public workers were very organised and very politically aware, and they absolutely did have agency in this one.

103

Daniel 09.23.11 at 10:29 am

But isn’t the conclusion that finance is a largely unaccountable operation, that does make mistaken and/or immoral decisions?

The conclusion is that “accountability” is a total political red herring, except in as much (footnote 2 above) it is aimed at improving the decision-making ability of the system (and of course, it is not only finance which makes mistaken and immoral decisions, we also had a couple of wars during the last ten years[1])

If I really thought that the rage brigade were (as ajay says above) trying to make people suffer consequences in order to prevent similar failures happening again, then I’d be more sympathetic to it – if it was sort of a populist version of a lobby for financial reregulation. But I don’t think it is. It looks much more like the very normal, but not very attractive activity of looking for someone to blame. It of course reaches its nadir in the Tea Party, the world’s only anti-bank-regulation populist movement.

[1] say what you like about George W Bush, he may have been responsible for the waste of $2trn of American taxpayers money and the deaths of half a million people but he didn’t get a bonus

104

ajay 09.23.11 at 10:32 am

Greece got to where it is because successive governments used the EMU interest rate windfall to avoid facing up to tough political choices.

Greece got where it is today because its governments spent the last eight years lying about their borrowing levels and colluding with major banks, in particular Goldman Sachs, in order to conceal the true state of the Greek public finances.

105

Torquil Macneil 09.23.11 at 10:37 am

Let’s see if I have this straight: it is transparently obvious that the cupidity and irresponsibility of the ‘politically aware’ and ‘organised’ pensioners, transport workers and benefit recipients of Greece were responsible for that country’s financial disaster but in the UK the situation is far too complex, nuanced and unclear so that blame is really not appropriate and, after all, the bankers were only trying to put a roof over the heads of the poor children, is that really so bad??!?

106

Roger 09.23.11 at 10:43 am

Looking for someone to blame is a logical response to actions in which someone is to blame. I don’t think it is too complicated.
Now,iIf you can’t find someone to blame, but you can find people who benefited enormously from activities that you find blameworthy, then a second best idea is to blame these people. And when these very privileged people very publicly wallow in very public displays of self-pity because they aren’t liked in comments columns in newspapers (although they are so liked by the governing class that they get to advise on their own regulation and regularly take massive helpings of government money when they go oopsy in some speculation because, well, the deregulations they advised led to the oopsy moment), then blame should turn, very properly, to mockery. If the newspaper commentors can only mount a charivari now, so be it; eventually, being a majority, maybe they will be able to mount something more.

107

CharlieMcMenamin 09.23.11 at 10:55 am

Ok, so this is in part an argument about how much personnel as opposed to structures matter. Shades of a long ago spate between Miliband Senior and Poulantzas are cast for those old enough to remember, only that was about the state not the financial sector.

What is absent from – or at least obscured by – Daniel’s account is the question of power. Economics per se has never been particularly good at dealing with this issue so it is perhaps unsurprising to find someone with a background in finance stumbling here. It really isn’t good enough to suggest , “…the entire British middle class…are in this up to their eyeballs” without trying to analyse whether this was the basic demand pull which lead so much of the City of London into a range of system threatening practices, or whether, in fact, causality runs the other way round, with the Financial system ‘creating its own demand’, partly through influencing the more general policy environment. (In Olden Days of Yore, such practices had a quaint label that will make you modern folk laugh: Class Struggle).

Also , on a more detailed note – and I say this as someone who likes a good knock about row as much as anyone – you really can’t get away with saying that “The financial market system stands or falls as a system”, which I take to mean that the City should be seen as a economic entity, and then blather on about how all the real failures were geographically located outside of the physical City of London. It’s just a rhetorical debating trick.

108

Barry 09.23.11 at 11:26 am

Torquil Macneil 09.23.11 at 9:24 am

” Shorter Daniel: hurrah for egalitarianism, but you’re not getting any of mine!

Most of the CT regulars are very quiet on this thread. I wonder why? Imagine for am moment that it had been written by Megan McArdle and … KABOOM!”

Well, I haven’t. And I imagine that they’re sharing my feeling, which is:

WTF?!?!?!?!?!

The only clue that this isn’t a McMegan pile of steaming Chicago is that it doesn’t have the glibness, and the smiling high school b*tch queen style that she likes.

109

tomslee 09.23.11 at 11:34 am

hidflect #83: Unfounded of racism are over the line. Please try reading before insulting.

110

tomslee 09.23.11 at 11:35 am

hidflect #83: Unfounded accusations of racism are over the line. Please try reading before insulting.

I’ll try reading before clicking Submit.

111

Metatone 09.23.11 at 11:36 am

Given that deregulation is propelled by the economic and political power of the bankers, which has been undimmed by the crisis, the only mechanism that gives even a hope of reversing that trend is to use social power – approbation, humiliation and hatred to counterbalance the economic and political power.

Until bankers are too scared to be quoted in newspapers and write on blogs, they will continue to lobby and succeed in setting policy for the immiseration of the rest of the populace to keep their economic-rent collection position strong and their bonuses high.

This is not about policy, or philosophy, it’s about power. It’s horrible, but that’s politics for you.

112

Alex 09.23.11 at 11:37 am

It’s quite possible to yell about banksters and denounce feckless government bailouts, and then conclude that what we really need is a good stiff dose of austerity, hard money, and tough credit. In fact it’s quite an old trick – that is actually how the epithet “banksters” was originally coined, by the right-wing opponents of Franklin Roosevelt.

And y’know, that’s precisely what the government of our own dear country just did. Lots and lots of denunciations of banks, bankers, and bailouts to get everyone’s hands in the air, then drop in the austerity… and smoothly fade out the tough credit/stricter regs/Project Merlin element.

And the fact that it is vanishingly unlikely that the level of redistribution you want to see (the profession of which which absolves you from any blame for the misery being inflicted on the poor by the profligacy and greed of people like you) is just beside the point?

This appears to be an argument that any actual progress is impossible, so the people must be offered something to vent spleen at. It’s actually quite horrible and contemptuous of the public’s intelligence.The only actual difference between this and the Osborne Mix detailed above is that Gideon doesn’t intend any progress even if it were possible – which isn’t really much of a difference, especially as he actually does claim that any other course of action is impossible.

113

Nick L 09.23.11 at 11:39 am

Easily the worst post on CT regarding the financial crisis, claiming to want to transcend the issue of blame whilst offloading it onto UK homeowners and Greek pensioners…

Telling that you appeal to Cohen’s argument about the moral case for egalitarianism. Cohen demonstrated very effectively that trying to ground a theory of justice on such a brittle notion as something like the labour theory of value was a dead end – okay, fair enough. But his subsequent work moved entirely in the wrong direction, towards a stress on an ‘egalitarian ethos’ and a ethical commitment to redistribution. Sure that may be important, but it justifies the kind of nonsense that d^2 flogs in this thread: who cares about the political economy as long as there are large redistributive transfers through the tax system. This exactly the same bankrupt programme followed by New Labour, let the City, in its unlimited wisdom, work its magic so that we can build more schools’n’hospitals. But we won’t achieve egalitarian goals until we move towards a radically reformed political economy, which means for one thing ending the UK’s dependence on casino capitalism. Getting angry at the banksters might well be a necessary part of a public campaign to do so – and most genuine egalitarians (as opposed to self-justified crypto-tories engaged in blog-based exculpation) could give a damn about a group of rent-seekers who have benefited from and contributed to the systematic chaos introduced to the world economy. Hard cheese: stop feeling sorry for yourself and count yourself lucky that you haven’t faced economic ruin like so many others have.

114

Alex 09.23.11 at 11:48 am

This is either bollocks or appallingly badly put:

they were invented because they were the only way to get the people into the houses, given how expensive property had become

I am not going to go so far as some other people have done and read this to attribute altruistic motives. But they were the only way to keep the property development->construction->realtor->mortgage-originator->investment bank->securities investor pipeline going, given how expensive property had become. And three out of the six elements in that pipeline are engaged in the business of banking and finance. Often more, as the banks were also lending hugely to property developers. (HBOS was killed by its corporate division’s property lending.)

They were also the only way to keep the consumer goods economy growing, given how crappy wage settlements had been for years in real terms, but that is another story.

115

actio 09.23.11 at 11:49 am

People who want to “blame the bankers” are half-right. The OP only focuses on the half-wrong part. It is more productive to focus on moving from half-right to right: blame the banking SYSTEM and the banking INSTITUTIONS. Blame bankers indirectly for keeping that system going. The current financial system is a key factor in the current crisis and generates and upholds inequality. The “City of London” is a central part of that system: http://www.newstatesman.com/economy/2011/02/london-corporation-city

The global tax haven system is the greatest anti-egalitarian power in the world today.

116

Del 09.23.11 at 11:59 am

Barry@108 is being very unfair. It’s definitely got the glibness.

117

Rich Puchalsky 09.23.11 at 12:03 pm

I’m not surprised at all that someone working as a banker mysteriously doesn’t think that British bankers are really to blame for anything, but thinks that “Greek benefit recipients, pensioners and public workers” are. That’s what happens to people who work as bankers for a while.

The “you’re ruining egalitarianism for everyone” bit is disappointing, though. I expect a higher standard in transparent rationalizations. If there were people raging about how we should have redistributive taxes on the rich in Guardian comments sections, I’m sure that we’d be hearing about the dispossession of the Kulaks, how it makes no sense to try to keep rebalancing income or wealth whenever people with different abilities start to have different results without asking whether they actually did anything wrong, etc. But it’s safe to talk about redistributive taxation now because there’s no chance of it happening.

118

Torquil Macneil 09.23.11 at 12:12 pm

“But it’s safe to talk about redistributive taxation now because there’s no chance of it happening.”

Quite.

119

Daniel 09.23.11 at 12:16 pm

It really isn’t good enough to suggest , “…the entire British middle class…are in this up to their eyeballs” without trying to analyse whether this was the basic demand pull which lead so much of the City of London into a range of system threatening practices, or whether, in fact, causality runs the other way round

I thought I had analysed it and concluded it didn’t, but Chris was also confused on Twitter and Alex in #113, so it’s clearly my fault. Basically, it was demand pull. Toy model:

Consider an economy with two people, Jim-Bob and Fatty. Jim-Bob needs a house to live in – he’d rather own than rent, but if he can’t own then he has to rent, he’s a forced participant. Fatty is an investor – he wants to get a rental yield that at least covers his financing cost, then hopefully get a free profit if the market goes up.

We start in the state of grace with no dangerous products. There are two interest rates in the economy – the short term rate (which Fatty borrows at, because he is a speculator and he borrows floating rate on an interest-only basis) and the mortgage rate (which Jim-Bob pays if he is going to buy a house, because he wants to pay down the principal as well, and/or he wants a more fixed interest rate). Let’s say that to start with, both rates are 8%, but that because Fatty is a speculator, he has to pay a 2% premium over the base rate. Ignore deposits and assume that both of them borrow 100% loan to value.

Say that Jim-Bob has £1000 a year to spend on housing consumption. Equilibrium in this model is that the house costs £12,500 and Jim-Bob owns it. Fatty can’t make the transaction work at that price, because if he borrowed at 10% he would have financing costs of £1,250, and he can only screw rent of £1000 out of Jim-Bob.

Now, say the short term interest rate falls to 3%. Fatty’s borrowing rate is now 5%. Fatty can afford to pay £13,000 for the house, get a mortgage costing £650 and rent it out to Jim-Bob. Now Fatty owns the house, it costs £13,000 and Jim-Bob pays his £1000 as rent to Fatty, who is coining it.

But Jim-Bob wants to get on the housing ladder. So he asks the banker “isn’t there anything you can do for me?” And because Jim-Bob is basically a better credit risk than Fatty, plus he will actually be living in the house, you can probably lend on a short-rate basis to Jim-Bob at 4%. So the banker says … well, how about if I lend you £8000 on normal terms (which will cost you £640 a year) and £6500 on Fatty rate minus 1% (costing £260)? Jim-Bob says “excellent! I am saving £100 a year, and I am no longer throwing away money in rent to Fatty!”, and buys the house off Fatty for £14,000. Fatty goes off and buys another house in another town for £15,000 …

You can see that after a few iterations of this, without anyone really planning it, the Jim-Bobs in the economy are going to end up in a house costing £25,000, with a mortgage that is 100% on Fatty terms. That’s basically what happened.

120

CharlieMcMenamin 09.23.11 at 12:31 pm

Dsquared@ 117

I think I rest my case about economics not being able to deal with the issue of power. Thank you for explaining how it fails to do so.

121

actio 09.23.11 at 12:32 pm

“You can see that after a few iterations of this, without anyone really planning it …”

Except there was planning on the SYSTEM level. There was very active planning in the institution building of the secrecy jurisdictions. The tax haven system that the City of London is a key part of has been very actively designed and “enhanced” over time to be optimal at blocking transparency and maximizing evasion. That system has magnified the speed and severity of the crisis.

122

William Timberman 09.23.11 at 12:33 pm

About exculpating individuals: We know about the consequences of making moral choices in immoral systems, from Sophie Scholl to the good sergeant in Platoon. We also know, having been confronted repeatedly by examples taken from studies of the Stockholm syndrome, or personal narratives like The Republic of Silence, how difficult it is to shore up one’s own individual moral universe when everyone else — everyone — treats you like a lunatic. It’s simply a fact that systematically constraining the moral choices of individuals is one of the principal goals of totalitarian social systems, however inadvertent, or organically evolved they may seem to be.

So it’s one thing to put on the uniform, and to witness, or even sometimes to participate, in evil deeds. It’s quite another thing altogether, however, to defend the machinery of evil, and one’s collaboration in it, after the danger has passed.

123

Alex 09.23.11 at 12:35 pm

If there were people raging about how we should have redistributive taxes on the rich in Guardian comments sections

If? That’s a normal day in a Guardian comments section.

I think D^2 should perhaps reconsider his analysis of the housing bubble in the light that we know, for a fact, that people (bankers!) were deliberately creating mortgage-backed securities so that their customers (mostly, other bankers!) could bet that they would fail. It’s hardly a berserk suggestion that the mortgage lending, real estate agency, and property development industries were deliberately inventing new kinds of mortgages to keep their gravy train on the rails. I mean, that’s what industries do – they come up with new products.

Sometimes this process is laudable, but sometimes they invent something like the RBMK nuclear power reactor, DDT, sausages with workers’ fingers in them, or negative-amortising pick-a-pay mortgages and they have to be restrained by government.

And famously, the stylised economic notion that firms simply respond to customer demand is unrealistic. Henry Ford apparently said that if he’d asked his customers what they wanted they’d have said “a better horse”. Also, just because you can persuade people to buy sausages with fingers and shit in them isn’t usually considered to be a sufficient defence against charges of making them.

Mind you, mortgage brokers do literally ask their customers what they want and in the property boom, what they usually wanted was “moar house and some on top for granite countertops”.

124

TG 09.23.11 at 12:35 pm

“Send me the bill”, I said. I am even so keen to see tax rates raised on people like me that I am prepared to save you the effort of composing a Sunday School lecture about it.

The lectures come as moral lessons only insofar as the financial services industry has kept making the same catastrophic mistakes over and over again over the past 30 years, and has done so based as much on institutional greed as on incompetence. When taxpayers bail the industry out time and time again, a lecture is in order.

For the Greeks, as with the “bankers” it’s not the individuals who are at fault so much as the rotten system in which they participate — in this case successive Greek governments that created a false sense of entitlement amongst public sector workers (in the con-game model, they’re the marks who were over-promised). Those irresponsible governments do indeed deserve to be lectured by the Germans and other wealthy Eurozone countries before Greece gets (or is denied) yet another bailout.

So yeah, Mommy gives you another temporary loan to help you get out of the mess, but you get a lecture on why what you did was very foolish and a suggestion that you use the money wisely and productively instead of blowing it on fancy beer or executive compensation.

Hey, at least your industry is getting its bailouts along with the lectures; the home buyers who took out the sub-primes and the Greek protestors are just getting the lecture.

125

Daniel 09.23.11 at 12:37 pm

And in order to finish the analogy, note that by the end of #117, Fatty is not going to bid up the price any more, because he has reached the point at which the maximum rent he can extract from Jim-Bob just covers his financing costs.

But Fatty has a daft cousin called Bungo. Bungo has seen Fatty get rich from his property portfolio, and watched a few Channel 4 property shows, and so he comes in paying £26,000 for the house, because housing has been going up for ages, and you have to be in the game to win it …

This marks the point at which the housing market is now in an actual bubble, and as long as there is a sufficient supply of Bungoes, it can go further and further, with the Jim-Bobs pushed into more and more desperately rickety financing structures if they want to own houses. That happened too.

126

Dan Hardie 09.23.11 at 12:38 pm

‘But it’s safe to talk about redistributive taxation now because there’s no chance of it happening.’

So:
1) Redistributive taxation is an essential policy for any social democratic or socialist state.

2) There is no chance of redistributive taxation being implemented because, erm, you know.

3) Ergo anyone who advocates redistributive taxation, which we have proved above by our detailed forensic arguments to be impossible, is a reactionary hiding behind feeble excuses.

4)True radicalism consists of (pauses, looks noble, gazes into the far distance).

127

Tom 09.23.11 at 12:40 pm

@DD 117

Er…why didn’t banks see this coming and simply refuse to lend anymore? Why is your example a demand led one?

128

Daniel 09.23.11 at 12:41 pm

in immoral systems

Oh give me a break. The “immoral system” in question, was the mortgage loan market. Not exactly a fucking concentration camp. It was a dysfunctional system, in which lots of very bad decisions were made, some of them dishonestly so. But immoral? Totalitarian? I really think you might want to dial down the rhetoric a bit.

129

Daniel 09.23.11 at 12:43 pm

Er…why didn’t banks see this coming and simply refuse to lend anymore?

Two possible explanations:

1. Myopia, wishful thinking, general tendency of assets to be bought by the highest bidder rather than the most sensible one, normal pathologies of a market economy plus of course it’s much easier to see these things in hindsight.

2. Sheer cackling evil

130

Nancy 09.23.11 at 12:46 pm

“This is only one step up from the socialism of fools. People just seem to have a compulsion to turn something that should be a simple matter of redistribution through the tax system, into a search for moral vindication or something.”

But an oft-repeated fiction, if not a morality play, is the reason the financial sector (in the US anyway) was able to throw off the regulatory controls that the government previously exerted for the common good. The story had heroes: the bankers, who were brilliant beyond the ability of any government dolt to understand. And brilliant bankers deserve outsized rewards because they contribute to the prosperity of everyone else by brilliantly funneling capital to the right players in the economy, thus playing a crucial part in a system that lifts all boats.

So this was still an egalitarian story (as American egalitarianism goes): yes, CEOs and Wall Street guys make a zillion times more than workers, but that’s because they are the wise heads making decisions that still bring a rising standard of living for the average worker.

Let’s even say this story was believed and repeated in good faith. But what happens when all the premises of this morality tale prove hollow? Even before the crash, living standards for all but the very rich were flat or barely rising–this despite large gains in productivity. And then the crash which, even if they didn’t cause it, the brilliant wizards of Wall Street did not foresee let alone prevent, despite their brilliance.

At the least, one would expect that this tale was tarnished beyond repair. Bizarrely, it’s not. I’d be very happy to drop *any* moral blame game if, in return, all the players in the financial sector and their lobbyists and political cheerleaders would agree to throw out these myths and accept practical measures (not moral retribution): greater government regulation, higher taxes on those who proved not so brilliant and badly mismanaged risk, and an end to the talk about “job creators” (ie wealth extractors) as necessarily the class that lifts all boats. In the US, though, this is a laughable prospect. Instead, the moral disdain is heaped on those with the least political power and those furthest from the centers of financial control.

This is not a coincidence. I’ve never heard any other banker acknowledge they have a bill to pay up. It’s novel, so I’ll offer my thanks. But long as any practical propositions (taxing the rich, regulating the financial sector) is met not just with obstacles but with howls of moral protest against this unthinkable “class warfare,” I’ll be angry with the guild who still insists on their own morality tale, facts be damned.

131

Torquil Macneil 09.23.11 at 12:49 pm

Or they saw it coming but figured they would get theirs before it came and they wouldn’t be the people who had to pay for it? I think we would accept that possibility for most other groups of people apart, it seems, for the sainted bankers .

132

Tom 09.23.11 at 12:51 pm

“Myopia, wishful thinking, general tendency of assets to be bought by the highest bidder rather than the most sensible one, normal pathologies of a market economy plus of course it’s much easier to see these things in hindsight.”

And all along we were told you were the smart guts who earned and deserved their money. There was no need for hindsight. I, and others, know people who work in the finance trade, some of them in mortgage backed securities. They absolutely knew it was a house of cards, but the incentives were such that they just carried on until the inevitable end. You, yourself, have said many times that you saw this coming.

133

Steven 09.23.11 at 12:53 pm

dsquared #97:

the case of Greece, where it actually was benefit claimants, pensioners and (particularly) public sector workers who caused the crisis

This sounds quite like the “argument” that goes “It was really the people who couldn’t actually afford houses, and so recklessly took out sub-prime mortages, who caused the crisis in the US”.

134

Torquil Macneil 09.23.11 at 12:54 pm

“You, yourself, have said many times that you saw this coming.”

And if you saw it coming but continued to take the cash when you could choose not to, what is that but immoral?

This is the cake that just won’t get eaten, isn’t it?

135

TG 09.23.11 at 12:58 pm

Two possible explanations

Even limiting things to those two, both deserve the sort of lectures that have apparently hurt your fee-fees — more so if the industry wants its bail-outs.

This isn’t about you as an individual (from what I’ve read, not at all), it’s about a dysfunctional industry mired in the neoLiberal (bordering on Randoid) mythos Nancy describes so well at 127. I’m open to criticism of the industries I’ve worked in, to the point of chucking one completely. I don’t take it personally.

136

Tom 09.23.11 at 1:02 pm

“I’m open to criticism of the industries I’ve worked in, to the point of chucking one completely. I don’t take it personally.”

Quite. Is there a living, breathing, example of a banker who has publicly come out and called a spade, a spade? Can we name one? Largely, exculpation or silence. This is one of the biggest shames of all.

137

engels 09.23.11 at 1:02 pm

There was once a king who was troubled by all the misery he observed about him. So he summoned his wise men and commanded them to inquire into its causes. The wise men duly looked into the matter, and reported back to the king that the cause of all the misery was him.

(Bertholt Brecht, paraphrased by Terry Eagleton)

138

nick s 09.23.11 at 1:05 pm

When you have the Daily Mail doing its “immigrants can lower your house price” thing on the front page, while devoting large amounts of space to interest-only mortgages, BTL and Icelandic savings accounts in its extensive personal finance section, then you end up with a pretty ugly set of bourgeois motivations that translate to the ballot box.

I’m still inclined towards protests-too-much, though: the public impulse to impose collective blame is a product of the perceived avoidance of individual blame, and if someone doesn’t own up, it’s detention for the lot of you. One of the threads running through a certain author’s succinct summary of “avoiding projects pursued by morons” is its sense of appropriate consequences for those who embark upon disastrous projects and those who place their faith in them.

139

William Timberman 09.23.11 at 1:16 pm

Daniel, I can see that you’re exasperated, and you have a point. Confidence men may relieve you of your savings, but they certainly don’t shoot you in the back of the head. Nevertheless, you’re defending as stupidity what, it seems to many of us, was liberally laced with malice. No one is accusing you of being one of the malicious, nor, God knows, one of the stupid, but on the basis of your post, and your comments following, I think I would accuse you of performing an entirely unnecessary fan dance. This sucks, and it may not turn out well, but what can I do about it, makes a certain amount of sense to everyone in this age of Dilbert. What doesn’t make sense, at least to me, is the idea that no evildoers were present at the scene, or if there were any, we should charge the gasworks employee who didn’t understand what a resetting variable-rate mortgage was all about with the crime itself, and Angelo Mozilo or Phil Gramm as mere accessories before the fact.

140

Alex 09.23.11 at 1:27 pm

It may be helpful to list the things and people Daniel has been analogised to so far in this thread.

A soldier who delivers severed ears to his commander in exchange for whiskey and cigarettes (@6 Six whole comments in!).
A non-specific murderer (@14).
A concentration camp guard (@120).
A concentration camp organiser (Odilo Globocnik! and we’re only @65).
Joseph Stalin (@115).
Dr. Harold Shipman(@59).
Megan McArdle (@108).

Some options not yet used include Dick Cheney, Tim Worstall, Cthulhu, von Sternberg-Ungern, Barack Hussain Obama, and I’m frankly disappointed nobody has called him history’s greatest monster yet, but it is only a matter of time before Bob McManus shows up.

My disagreement can be summed up by the following distinction. Daniel would no doubt say that this bears out his point – people are consumed by unreasoning and unproductive rage at anything that has anything to do with banks. I would say that this demonstrates that Daniel is a practised and expert master troll, someone who has learned how to define exactly what will whip a given Internet forum into a frothing welter of stupidity, and deliver it on cue.

141

Alex 09.23.11 at 1:30 pm

Can anyone say they are not waiting with baited breath for Bob’s contribution to this thread?

142

Torquil Macneil 09.23.11 at 1:31 pm

It’s nice to see Daniel has someone to stick up for him in these trying times, Alex, and that the art of forelock tugging as not entirely died out.

143

Daniel 09.23.11 at 1:34 pm

This sounds quite like the “argument” that goes “It was really the people who couldn’t actually afford houses, and so recklessly took out sub-prime mortages, who caused the crisis in the US”.

Well, it is in as much as the borrowers in the US did have agency; there were cases of fraud and mis-selling, but the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.

But I’m only saying that the Greek crisis was caused by public sector workers and pensioners, working together with the Greek political class to take a holiday from reality for ten years, in the context of an argument that even in the case of the most seemingly sensible charges you can make, ie the bankers, it’s not actually productive or correct to carry out a blame exercise. Faced with a borrowing cost 20 basis points above Germany, what was Greece ever going to do?

Some people really did do bad things, and where people behaved dishonestly or negligently they are the proper objects of punishment, but actually, this crisis was a result of the normal behaviour of the system acting normally. And more importantly, the whole question ought to be second order. Even if things had gone totally differently and Lehman Brothers was still making profits hand over fist, I’d still be saying that you should tax the rich.

144

Tom 09.23.11 at 1:40 pm

“Some people really did do bad things, and where people behaved dishonestly or negligently they are the proper objects of punishment, but actually, this crisis was a result of the normal behaviour of the system acting normally”

FFS.

145

Torquil Macneil 09.23.11 at 1:41 pm

” Even if things had gone totally differently and Lehman Brothers was still making profits hand over fist, I’d still be saying that you should tax the rich.”

And I think most people agree that is unlikely to occur, so why not demonstrate your bona fides by taxing yourself? How about half of your wealth to a number of poor families selected by the CT-er(s) of your choice until such a time as the tax regime that you think appropriate is put into place? After all, you would still be a rich man, so it is win-win, and if you insist on keeping it all some people will think you are speaking out of both sides of your mouth and that your desire to distract attention away from the culpability of the bankers is a teeny bit self-serving. We wouldn’t want that.

146

Uncle Kvetch 09.23.11 at 1:42 pm

the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.

[...]

it’s not actually productive or correct to carry out a blame exercise.

Delicious.

147

William Timberman 09.23.11 at 1:43 pm

Alex, a display of Olympian disdain by non-licensed Olympians is a chargeable offense, and not just in the People’s Republic of Weltering Stupidity.

148

Other Pete 09.23.11 at 1:44 pm

I think Nancy hit the key point. This is a lovely sentiment:

In general, if you want to build a better society, the message from the more thinking and socially responsible element of the financial sector is “send us the bill and spare us the lecture”.

But on that definition, “the more thinking and socially responsible element of the financial sector” seems to be a vanishingly small group with almost no influence on policy. Mostly, the message from the UK financial sector seems to be that you should not send it any bills under any circumstances, and that any attempts to send bills will result in a change of address to somewhere less grabby like Switzerland.

Also Daniel @140:

the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.

Sorry if I’m missing the point here, but surely this is at least as much the fault of lenders who were actually claiming to have some sort of special expertise about assessing financial risk.

149

Other Pete 09.23.11 at 1:46 pm

Oh, sorry, read the whole thing. Ignore the bit about lenders.

The first point stands, though.

150

Daniel 09.23.11 at 1:50 pm

One of the threads running through a certain author’s succinct summary of “avoiding projects pursued by morons” is its sense of appropriate consequences for those who embark upon disastrous projects and those who place their faith in them.

Good point, and I should probably have emphasised more in the post that it makes sense to have condign punishment of the dishonest and incompetent, as part of a sensible regulatory regime aimed at stopping it happening again.

But if you look at CiF and its equivalents, we’re really not seeing bank-rage as a constructive program of reforming the sector (or at least, not for the most part). It’s basically a combination of self-expression, combined with the, in my view basically pernicious, implication that banker-rage is a good argument in favour of redistributive taxation. And it’s in general coming from people whose understanding of what they’re talking about is basically on the level of “nasty hobbitses, we hates them”.

151

Alex 09.23.11 at 1:53 pm

And it’s in general coming from people whose understanding of what they’re talking about is basically on the level of “nasty hobbitses, we hates them”.

If you’re trying to deny that you’re trolling…

152

Daniel 09.23.11 at 1:54 pm

What doesn’t make sense, at least to me, is the idea that no evildoers were present at the scene

That’s the difference. This totally does make sense to me. Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash. If you are going to assume that it was caused by malefactors, or was in some way a pathology or abnormality of the system, you’re not going to develop the right analysis of capitalism. It has crashes and crises. That’s how the system works.

153

Daniel 09.23.11 at 1:56 pm

148: no, I don’t think so. There are people in the Luendijk thread linked above who are literally arguing that there is no point in making distinctions between financial sector employees and we should just hate them all indiscriminately.

154

Torquil Macneil 09.23.11 at 1:56 pm

Because conspiracies only happen elsewhere, right Daniel?

155

CharlieMcMenamin 09.23.11 at 1:59 pm

@ 140
this crisis was a result of the normal behaviour of the system acting normally.

Well, yes, Daniel, I’m with you there.

Except, of course, that as you yourself implied, thirty-forty years ago the system worked a little differently. & much of the change is down to the incessant lobbying and pressure created by the finance industry itself. So it is possible to imagine a world where finance doesn’t have such a big say, and where there is a different ‘normal’. But I’m keen to be directed to any evidence that any senior representative of the City of London has reacted to the crisis of 2008 – still ongoing, I know – by calling for a changing the rules which govern the game.

156

OCS 09.23.11 at 2:04 pm

If I really thought that the rage brigade were (as ajay says above) trying to make people suffer consequences in order to prevent similar failures happening again, then I’d be more sympathetic to it – if it was sort of a populist version of a lobby for financial reregulation.

But I think the rage comes about because people and institutions didn’t suffer the consequences. Look — if after the banking crisis the government had taken over the banks, fired management, given bondholders a haircut, closed the hopeless banks and recapitalized the healthy ones, and instituted strong regulatory reform that addressed all the weaknesses of the system that had become so obvious, then there wouldn’t be this rage. Or even if after it was all over we had bankers saying, “Yeah, we screwed up, and clearly our industry needs more regulation to keep this from happening again.” But none of that happened.

Instead, the guys who got us into this mess actually gave themselves record bonuses. They fought reform. And at the same time they were lecturing people whose houses were now worth less than they owed (and whose mortgages gave them every right to turn the house over to the bank) about their moral responsibility to keep making those payments! And that same industry fought against efforts encouraging them to renegotiate mortgages (making — astonishingly — moral hazard arguments), fought suggestions that people in bankruptcy could have their mortgage terms changed by the judge … Well, you can see from my italicization that I’m getting enraged all over again.

It’s not that I think all “bankers” are capital E Evil. As I said, most were just doing jobs in a system they had no real control over. If you lined them up in front of me I couldn’t pick out the ones I wanted stripped naked and driven out into the wilderness (although I’d certainly give you a pass if I recognized your face).

But yes, I do think anger is appropriate, no matter how unfocused, no matter whether it’s politically useful, and even if a lot of it is uninformed. People know they got screwed, and in a general sense they know who did it to them and got away with it.

157

straightwood 09.23.11 at 2:09 pm

It has crashes and crises. That’s how the system works.

Another day, another world-class sophistry. When each crisis is an order of magnitude bigger than the last one, even an overpaid financial “engineer” should recognize an unsustainable pattern. The world economy cannot survive another crisis brought on by money-crazed lemmings and what Daniel considers their “normal” behavior.

Hint to Daniel: whatever it is you guys are doing, it is not working well for the rest of us.

158

Steven 09.23.11 at 2:12 pm

Daniel #140:

Well, it is in as much as the borrowers in the US did have agency; there were cases of fraud and mis-selling, but the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.

You seem to be saying that because a lot of people in different spheres had some agency, then we can’t blame anyone at all, even though some agents in this mess obviously had vastly more power and information than others; though at a pinch, and given a choice, it’s preferable to blame the little people, eg Greek public-sector employees or unrich Americans who wanted houses and were told by experts they could have them. But surely, if you don’t want people to blame the bankers (because agency was so liberally spread around), then you don’t get to blame anyone else either?

even in the case of the most seemingly sensible charges you can make, ie the bankers, it’s not actually productive or correct to carry out a blame exercise

I actually agree with you that “bankers are the real criminals” is bollocks. But I think it is understandable-bollocks-shorthand for something that is obviously true: that the entire nexus of crisis-bailouts-”austerity”-imposed-by-politicians-with-well-thumbed-copies-of-The-Shock-Doctrine has done a lot more harm to a lot more people than a few hundred teenagers smashing windows and nicking mobile phones.

159

Steve LaBonne 09.23.11 at 2:15 pm

OK, I’m tired of this imposter. Could we have the real dsquared back now?

I really can’t state the problem with the imposter’s position any more clearly than OCS just did @153.

160

Tom 09.23.11 at 2:19 pm

OCS @153

Post of the day, like Steve, I can’t put it more clearly than this. Any chance of an answer specific to 153, DD?

161

Rich Puchalsky 09.23.11 at 2:25 pm

“That’s the difference. This totally does make sense to me. Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash. If you are going to assume that it was caused by malefactors, or was in some way a pathology or abnormality of the system, you’re not going to develop the right analysis of capitalism. It has crashes and crises. That’s how the system works.”

Oh, really. Let’s give up the criminal blame game, all right. But when someone asks a basic question of the form “why do we have bankers, anyways?” they either get an answer that has something to do with the social allocation of capital, or the they get an answer of the form “Because it’s a profitable business, so people do it” (where “profitable” implicitly means “does not need to get bailed out by the government in order to exist”. So we’re actually talking about incompetence here.

“Let’s not play the blame game” may have a certain philosophical nobility when people are talking about being treated as criminals for non-crimes. It takes on an entirely different coloration when it’s trotted out by people who can’t do their jobs.

162

Dave 09.23.11 at 2:29 pm

After reading the OP and the comments, I must say, Daniel has persuaded me. I would like to take this opportunity to apologize for blaming bankers, for thinking that bankers had anything to do with the collapse of the banking system or even its subsequent bailout. This was myopic of me, especially from the standpoint of the pursuit of egalitarian politics. Clearly, if we are to be egalitarian, we must stand with the bankers, who, on the whole, are surely very nice people to stand with.

The spiritual burden on financial sector workers must be enormous, knowing that they are the only people who have made money these past few years. They must be tortured by their sympathy for the Greek pensioner, even as Greece’s creditors, i.e. bankers, try to extract all money from them, even to this very day. Chin up, Daniel. Greece will muddle through, somehow. Don’t worry yourself too much about it.

I await the day when the Guardian comments section goes quiet, and in beautiful egalitarian fashion, bankers are treated in exactly the same fashion as the poor. Peace, comrades.

163

Nick L 09.23.11 at 2:30 pm

Last comment was lost in moderation, probably too angry. Fine, I don’t mind dialling it down, not that there is anything wrong with being angry under the circumstances. A shrug and a ‘that’s the way the system works’ doesn’t really cut it when many many people are facing a substantially worse future due to decisions in which they had no say in.

To reiterate what a few people above have been saying, your argument might make some kind of sense if the financial sector didn’t have a hotline to policymakers, wasn’t directing huge financial support to on-side politicians, hadn’t been pushing for the liberalisation of the way in which finance was regulated long before the crash, and wasn’t lobbying hard for a hard-money, austerity based response to the crisis which leaves casino capitalist features of finance untouched.

I think you are right that the macro-level causes in terms of global imbalances are the most important part of the explanation. But it’s a facile form of structural determinism to hold that that gets everyone involved off the hook, especially when there are individuals and groups fighting any effort to right some of the structural problems. Hobson thought that underconsumption at home was the cause of imperialism abroad, but that didn’t attenuate his moral opprobrium.

164

straightwood 09.23.11 at 2:32 pm

OCS @153

Dead on target. What fuels the public rage is the endless, insufferable arrogance of people caught in flagrante, before multiple witnesses, on video, on Facebook, and on the big screens at Times Square, saying that this is all for the best in the best of all possible financial worlds.

165

ajay 09.23.11 at 2:39 pm

Oh, really. Let’s give up the criminal blame game, all right.

Actually let’s not. It is still an open question to what extent actual criminal-type crime played a role in the financial crisis, and I think we need to accept that the lowest possible bound of that extent is not “zero”. Not when you have people like Angelo Mozilo around, whose actions are a matter of record, and enough instances of mortgage lender fraud popping up in the US every week to keep the blood pressure of (eg) Yves Smith permanently at the sort of level normally found inside the primary coolant loops of nuclear reactors.

Yes, “Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash” is a good description, but in a lot of cases – and we don’t know how many yet – the rational thing to do was to commit large amounts of fraud. And I’m not talking about mortgage borrowers here, but the lenders, and the RMBS structurers further down the chain. There were – and are – a lot of outright criminals involved in this crisis.

166

Barry 09.23.11 at 2:40 pm

Daniel at 140:

“Well, it is in as much as the borrowers in the US did have agency; there were cases of fraud and mis-selling, but the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.”

‘there were cases’ = ‘trillions of dollars of junk securities were fraudulently advertised and rates as sound’

In addition, there are cases of high-scale mass production of forged documents which have come to light in mortgage companies, chiefly because they went bankrupt.

“but the majority of bad subprime mortgages were definitely ones in which a bad decision was made by a borrower who should have made a better one.”

This is a classic right-wing lie, placing the blame on the amateur in the mix, while ignoring or down-playing what was done by the professionals.

167

Phil 09.23.11 at 2:48 pm

Daniel, I still think you’re kicking a strawman (which you seem to have christened Justin). I don’t think anyone’s saying that being angry with bankers is a political programme, or that when people say they hate bankers that’s the beginning & end of what they think on the subject. I think what people are saying (which you’re largely ignoring) is that (a) people in parts of the financial sector have a lot of power to screw up the sector & the economy more broadly, (b) this power lately hasn’t been exercised wisely or well, and (iii) the people responsible for those decisions still seem to be doing quite nicely thankyou in terms of wealth & power. And (d) this is wrong – more wrong than at least some of the things that get punished as crimes.

Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash.

Two points here. Firstly, both the market & the incentives were shaped by their political, legal & regulatory environment, or more specifically by a whole history of regulatory relaxation and backing-off. You could kick the rationality can further down the road by saying that the drafters of the Building Societies Act 1986 (say) were themselves responding rationally to incentives, but it wouldn’t be terribly persuasive. Usually when a system falls apart someone’s done something somewhere which could reasonably have been seen to be wrong.

Perhaps more importantly, how about we bracket out the whole ‘evil’ thing? I don’t know about straw-Justin, but I think that most people who fulminate about Fred Goodwin (or whoever) being a bigger criminal than that looter who stole the bottled water (or whoever) really aren’t that interested in motive. It’s just a way of saying that Person A (who is going to be spending a lot more time in the criminal justice system from now on) has done less harm to fewer people than Person B (who is still doing very nicely thankyou, and probably will be for the rest of his natural). And this is wrong.

168

Barry 09.23.11 at 2:50 pm

I would also add that any productive actions taken will involve the punishment of innocent people, because there is no other solution; efficient reforms will be blocked and gutted by banking lobbyists; effective prosecution of companies and small groups will be blocked by the revolving door between (in the USA) the SEC and the DoJ and the financial defense bar. The market will also not be allowed to work in this situation, because the bankers will drive the risks up high enough that their collapse would take down the rest of the developed world’s economy (moreso than before, because now they *know* that nuclear blackmail will work).

The most likely route to reform is that the banking industry causes yet another massive crisis in the next several years, and actually puts the half-broken developed world into an undeniable Great Depression II. At which point outrage will finally break these barriers, and revenge will be taken.

The situation is analogous to facing an attacking army – sure, it’d be sweet to send in the Teleporting Death Ninjas, and decapitate the enemy’s command structure, and do the sort of surgical strikes which happen in movies, but that only happens in movies.

In the end, you win by killing a whole bunch of the enemy, 95% of whom are poor dumb grunts.

169

Rich Puchalsky 09.23.11 at 2:51 pm

“Actually let’s not.”

Sorry, Ajay, I was assuming a for-the-sake-of-argument kind of thing. I didn’t mean to imply that no actual crimes were committed. Again, I know very little about the UK, but in the US, organized fraud was rampant, although I have no idea about whether it would be classed as criminal under whatever statute governs. The bankers have convinced the political class not to prosecute in any case.

But to reiterate — this is like someone working in the nuclear power industry saying “OK, so we had one meltdown. That’s part of the natural cycle of the industry; sometimes you get a big accident and a meltdown. Why is everyone so mad? It wasn’t our fault. It was your fault for wanting electric power.”

170

Alex 09.23.11 at 3:01 pm

It is still an open question to what extent actual criminal-type crime played a role in the financial crisis, and I think we need to accept that the lowest possible bound of that extent is not “zero”

This is right. And, as I said upthread, businesses invent products and then they sell’em, and they are responsible for what they come up with. It’s a fallacy to think that all possible business ideas are somehow inherent in the mind of the customer before they happen. Businesses lead fashion as well as follow it, and if you invent the financial equivalent of deck shoes, you’re damn well responsible. You started it.

This is a classic right-wing lie, placing the blame on the amateur in the mix, while ignoring or down-playing what was done by the professionals.

No. Certainly in the UK and Ireland, and as far as I know elsewhere, the property boom was an era of absolutely repellent, piggish greed that was actually open to you! It was a culture of speculation that was *participatory* and all the uglier for it. All sorts of people got the opportunity to behave like caricature bankers, right down to the horrible politics, and they did.

171

tomslee 09.23.11 at 3:07 pm

The discussion convinces me that, as the OP said, there is no place for knocking bankers in serious politics. That said, it also convinces me that if so many bankers (no, not all) weren’t such total pillocks (nick’s link at #31) then the non-pillock bankers wouldn’t have so much to complain about.

Bankers should study the software industry, which has also (1) made out like bandits from one bubble, and are in the middle of doing it again, (2) wrecked a bunch of other industries. Yet no one seems to hate them.

As Rory Sutherland at the Spectator says:

“In the tangible world, when a large American cinema chain arrives in the UK and causes small local cinemas to close, a certain sort of person (though not me — I love a good multiplex) regards it as self-evidently bad. Yet when Amazon or iTunes jeopardises our high-street book or record shops, there is far less criticism.”

And as he concludes: “There’s a lesson here for bankers. If you want to regain public affection, start dressing like Californians. Grow beards. Light a joss-stick in your feng-shuied office. Then no one will mind how much money you make or how.”

It’s a bit like punk and rap. The software types are from wealthy backgrounds (Stanford) but pose as counter-culture street kids, while the bankers – often from less wealthy backgrounds – want to flaunt the coke and women. (software and banking types seem equally white and male). Even non-punks look at punks with affection — anyone watched a music video from 1978 recently? Those kids were adorable; how did we ever think they were threatening? — while rappers still intimidate and piss people off after 20 years of music.

172

Marc Mulholland 09.23.11 at 3:13 pm

I think Daniel’s broad point has been made before, by another direct beneficiary of capitalist exploitation:

“Every stock-jobbing swindle everyone knows that some time or other the crash must come, but everyone hopes that it may fall on the head of his neighbour, after he himself has caught the shower of gold and placed it in secure hands. Apres moi le deluge! is the watchword of every capitalist and every capitalist nation. Capital therefore takes no account of the health and the length of life of the worker, unless society forces it to do so. Its answer to the outcry about the physical and mental degradation, the premature death, the torture of overwork, is this: Should that pain trouble us, since it increases our pleasure (profit)? But looking at these things as a whole, it is evident that this does not depend on the will, either good or bad of the individual capitalist. Under free competition, the immanent laws of the capitalist mode of production confront the individual capitalist as a coercive force external to him.” [Marx, Capital, (Fowkes trans.), 381].

173

Barry 09.23.11 at 3:14 pm

Rich:

“But to reiterate—this is like someone working in the nuclear power industry saying “OK, so we had one meltdown. That’s part of the natural cycle of the industry; sometimes you get a big accident and a meltdown. Why is everyone so mad? It wasn’t our fault. It was your fault for wanting electric power.” “

You didn’t go far enough; it’s like having a melt-down that was in the range of (low-end) apocolyptic fiction, and finding that there was massive corruption, fraud deliberate miswork on a scale that shocked hard-core anti-nukes, and *then* saying what you wrote.

174

Marc Mulholland 09.23.11 at 3:15 pm

(Sorry – first sentence of above quote should read “In every stock-jobbing swindle everyone knows that some time or other the crash must come, but everyone hopes that it may fall on the head of his neighbour, after he himself has caught the shower of gold and placed it in secure hands.”)

175

otto 09.23.11 at 3:18 pm

FWIW, I am not so sure that the software types come from wealthier backgrounds than bankers.

176

Bloix 09.23.11 at 3:19 pm

# 172- and not, perhaps, because iTunes and Amazon let you buy stuff you really like, while bankers wrecked our lives.

PS-
on the myth of the irresponsible, greedy Greek pensioners, see Krugman today:
http://krugman.blogs.nytimes.com/

177

Hektor Bim 09.23.11 at 3:20 pm

I want to separate two things.

1) Redistributive/progressive taxation. Always a good idea, and even more so now. Preventing excessive concentration of wealth means the society on the whole is better/richer and protects democratic government.

This doesn’t have much to do with the current crisis, except to the extent that financial services, especially in the UK, have an outsize influence on the politics of the UK and use that to extract rents and damage the standing of the country as a whole.

2) Protecting the economy against crises.

This is the great sin of the financial services industry. There is no evidence that the massive expansion of the financial services industry has created wealth or improved the economy of Britain beyond what it might have done otherwise. There is no real explanation for the ridiculous bonuses that higher-ups in the financial services are able to gain even after they drive their companies into the ground and they are rescued with public money. So we get no upside from financial services and enormous collapses that threaten the entire society on the downside.

Since the financial services firms are run by people with no sense of responsibility or limits and no sense of the social compact, we have to regulate them until the people who run them either gain a sense of responsiblity or lack the power to hurt the rest of us. Putting a large number of them in prison or forcing them to work at real jobs is also a good idea. It seems to me that one way to do this is to generate enormous hatred toward them as a class until they are willing to self-police to save their own skins. We have to increase the incentives on them to rat out each other, while we systematically starve them or money and power until they can be brought to heel.

The growth of the financial services industry that has occurred in the last thirty years or so is analogous to raising a bear cub in your house, spending more and more money feeding and housing it, on the hope that it won’t turn around and eat you. We have to starve the beast until it submits.

178

Alex 09.23.11 at 3:21 pm

Marx – not a bad financial journalist for a philosopher and global revolutionary…

179

marcel 09.23.11 at 3:26 pm

It just dawned on me that Daniel’s move here, in defending bankers, resembles (nothing so much as?) C.Hitchens coming out in support of the US invasion of Iraq, in defiance of most of his previous political allies. Like Hitch’s move, it both demonstrates his independence and character and raises serious questions about his acuity and judgment.

I wonder what has happened in his life in the last 3 weeks. His own blog has been unusually inactive during that period. Has someone whacked him on the head for being a banker?

180

SamChevre 09.23.11 at 3:26 pm

Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash. If you are going to assume that it was caused by malefactors, or was in some way a pathology or abnormality of the system, you’re not going to develop the right analysis of capitalism. It has crashes and crises. That’s how the system works.

Add “legally and ethically” after rationally, and you’d have my sentiments exactly.

And especially if you want “more regulation” to actually be helpful, you need to understand this.

181

tomslee 09.23.11 at 3:34 pm

Bloix, bankers let us buy stuff we wanted too. And Apple/Amazon wreck people’s lives as well – see here or talk to workers at Foxconn.

182

Popeye 09.23.11 at 3:39 pm

elm seems to have gotten to the heart of the matter in comment #1.

This:
they were invented because they were the only way to get the people into the houses, given how expensive property had become.

is laughable.

183

Guano 09.23.11 at 3:53 pm

Ronan Point was invented to get people into houses. The engineers who designed that type of block of flats broke the rules. Bankers designed bad financial products to get people into houses but apparently they didn’t break any rules, even though they hid junk debt inside the AAA credit rating of well-known banks. Credit-rating agencies gave them AAA ratings because they didn’t look inside these products. People bought and sold these packages without looking inside these packages. And none of this is criminal?

These aren’t markets. They are not linking the producers and consumers of useful products.

184

Daniel 09.23.11 at 3:56 pm

You seem to be saying that because a lot of people in different spheres had some agency, then we can’t blame anyone at all

Happy to confirm that this is my view; consistently since my first post on the subject on CT, my candidate for the blame has been “the general tendency of complex systems to have complex and unpredictable dynamics”. Sorry it’s such an unsatisfying villain, but if you bought a ticket on the expectation of seeing a morality play, I have to say I didn’t advertise that there would be one. I only brought up the bloody Greek pensioners in order to point out what silly and/or repulsive consequences this business of looking for villains can have.

In actual fact, by the way, every single major bank chief executive in Britain has lost his job except Bob Diamond (who did not take a government bailout), and several tens of thousands of “bankers”, including quite a few of my friends, have lost their jobs. There has also been a major re-regulation of the sector, and in the UK there is going to be the biggest structural reform since the war. Just saying.

Except, of course, that as you yourself implied, thirty-forty years ago the system worked a little differently.

It didn’t. I have a post on this subject entitled “crisis is the normal state”. If you want to go back to an era of more infrequent financial crises, you need to think about the break-up of Bretton Woods.

185

ajay 09.23.11 at 3:57 pm

170: Sorry, Ajay, I was assuming a for-the-sake-of-argument kind of thing. I didn’t mean to imply that no actual crimes were committed

Ah, fair enough. Sorry for the misreading.

The rating agencies, incidentally, are a great example of what I mean about the rational thing being to commit fraud. There is, for example, the case of S&P discovering that it had been using the wrong model to rate MBS, and then refusing to correct its ratings because that would mean downgrading them, and that would lose them market share. That’s the economically rational thing to do, but it’s also culpable.

The problem is, ironically, that Daniel’s right about the banker-hatred being counterproductive, but he’s wrong about why. The reason it’s counterproductive is that it’s encouraging the majority of non-guilty bankers to close ranks with their guilty colleagues* rather than casting them out. (If someone says “Al Capone is a bad man!” then I, Giuseppe the shopkeeper, will probably agree. But if he says “Al Capone is an example of how all Wops are criminals!” then I will probably end up feeling a bit sympathetic to Al.)

* As a bank analyst by trade, Daniel’s ethical obligation was to point out early and often that banks were doing incredibly dangerous and unwise things with their investors’ and depositors’ money in the runup to the crisis. If he did this, then he definitely falls into the former rather than the latter group.

186

Daniel 09.23.11 at 4:10 pm

Daniel’s ethical obligation was to point out early and often that banks were doing incredibly dangerous and unwise things with their investors’ and depositors’ money in the runup to the crisis

Which I did, in the case of the Irish banks which I was covering at the time, in 2007. I was working hard on the general issue for the preceding five years, and it is therefore from a position of some knowledge that I say that it was not obvious, as late as 2005, that US housing was a bubble. Dean Baker was saying so and he was right, but the arguments on the other side were actually pretty intellectually respectable. In 2006 (with the HSBC profits warning) it became clear that something was up, but all too many people assumed that this was because of systematic malpractice at Household International and Ameriquest, rather than being a general and systemic problem.

I am all in favour of casting out the guilty, not least because it would open up more business and market share for people like me. But there just aren’t enough genuine bad actors to satisfy the crowd. Particularly since, as the link in the original post and this comments thread both show, the appetite for moral condemnation is pretty much insatiable, and the level of interest in what might constitute a sensible plan for dealing with the financial sector surprisingly low.

187

vladimir 09.23.11 at 4:14 pm

“There are people in the Luendijk thread linked above who are literally arguing that there is no point in making distinctions between financial sector employees and we should just hate them all indiscriminately”

I see what you mean. Should we, at the very least, be making a distinction between “Bankers” and “Traders”? From what I’ve read, one group is infinitely more villainous and short-termist than the other

188

nick 09.23.11 at 4:15 pm

d2: ok, what about this: not just “tax the rich [which includes bankers]” but a financial transactions tax specifically designed to eliminate certain of the innovative products and procedures that characterize the latest golden age of finance? one might desire such a tax not out of moral outrage, but from the belief that activities destructive to society have become central to finance. if this turns out to mean that bankers are a lot less wealthy, all the better!–then we won’t have to worry that most of them don’t share your generous beliefs about income tax……

189

Daniel 09.23.11 at 4:15 pm

Oh and just to be clear here, pointing out a bubble “early and often” is not my job; I have neither volunteered for nor been offered the post of unpaid amateur central banker. My job was to predict the imminent collapse of a bubble, when it was sufficiently clearly established, and when the collapse was in fact imminent. Anti-bubble policy was Alan Greenspan and Mervyn King’s job, not mine.

… and of course, they didn’t do it because “anti-bubble policy” would have been inconsistent with the “pro-bubble policy” that they were actually running. The housing bubble was a policy-created consequence of the attempt to reflate the economy after the tech-telecom[1] bubble. I’ve mentioned this before, but if bankers didn’t respond to the immediate incentives in front of them, and if they tried to carry out anti-bubble policy themselves without a licence, then we would be living in a world in which monetary policy was actually impossible (this is of course the Lucas policy neutrality result). I am not sure people realise what they’re asking for when they say that “bankers” shouldn’t respond to a fall in interest rates by increasing the supply of credit.

[1]bastards!

190

Gareth Rees 09.23.11 at 4:15 pm

In 2006 (with the HSBC profits warning) it became clear that something was up

2006 was the year that the housing market in San Diego crashed, so yes, it was pretty clear by then that “something” was up.

191

Daniel 09.23.11 at 4:18 pm

189: I think there’s a good case for a financial transactions tax, but would probably say that it would be better organised in order to maximise the efficiency of the tax take rather than as an instrument of regulatory policy. If one thinks that particular financial instruments are intrinsically pernicious (and I have a list of characteristics that I think are generally associated with malpractice) then that should be dealt with by prescriptive regulation. In general though, it’s probably a false hope that anyone will be able to regulate the financial cycle out of existence – the S&L debacle happened without any particularly complicated instruments.

192

Dr. Hilarius 09.23.11 at 4:21 pm

Daniel @126: There were, and are, a lot of Bungos out there. But it seems crazy to allow the Bungos to crash the economy. If there had been any meaningful lending controls (commission claw-back if loan goes tits-up in under two years; banks required to hold at least some portion of their mortgages) Bungo would have been refused a loan at some point. After all, the bankers portray themselves as wise and worldly, at least a step or two above the people shilling dubious products on late-night TV.

And let’s not forget the role of appraisers. Someone had to swear that the house in question was really worth the inflated sales price. I heard again and again, “don’t worry we have an appraiser who can hit the numbers.” Honest appraisers who didn’t “hit the numbers” were blacklisted by lenders. Hence, the new rules restricting lenders from choosing appraisers.

As for agency and responsibility, it is the nature of the corporate beast to diffuse decision making and obscure responsibility. This makes it more difficult to point to a specific actor and say he’s the problem, but it doesn’t make it impossible or undesirable. A lot of dishonesty could be prevented by extending the US Supreme Court’s holding on corporate personality. Execute the directors of failing financial institutions. After all, bankers do cost/benefit analysis a lot better than junkies who rob banks.

193

Tom 09.23.11 at 4:21 pm

“Which I did, in the case of the Irish banks which I was covering at the time, in 2007. I was working hard on the general issue for the preceding five years, and it is therefore from a position of some knowledge that I say that it was not obvious, as late as 2005, that US housing was a bubble. Dean Baker was saying so and he was right, but the arguments on the other side were actually pretty intellectually respectable. In 2006 (with the HSBC profits warning) it became clear that something was up, but all too many people assumed that this was because of systematic malpractice at Household International and Ameriquest, rather than being a general and systemic problem.”

That this is so, makes your industry look like a god damn sham, then, given that most of the seeds of destruction had been sown by 2006. What is a non-financial type supposed to think or your industry, otherwise? Sure, hindsight is a wonderful thing, but given the the “talent” in the industry that we hear so much about, was a scintilla of foresight a little too much to ask?

194

CharlieMcMenamin 09.23.11 at 4:25 pm

@185
There really hasn’t been a major re-regulation of the system Daniel. Well, not ‘major’ in any sense anyone from outside the finance sector might recognise as major. I think jamie of Blood and Treasure probably nail it a couple of years ago when he said,
“It was probably wrong to say that various banks were nationalized over the past year. It would be more accurate to say that after working for the banks as a regulatory contractor for a number of years, the government agreed to be taken over directly by them in a deal funded by the taxpayer. The new financial-political entity is now free to divest itself as much as possible of loss making non-core functions like education and health, freeing up money to remunerate Mr Hester and his friends. “

195

Tom 09.23.11 at 4:30 pm

“I am not sure people realise what they’re asking for when they say that “bankers” shouldn’t respond to a fall in interest rates by increasing the supply of credit.”

When you say “respond”, what do you actually mean by that, what is included in this catch all? Does it include coniving to lower mortgage underwriting standards, for example, or selling knowingly toxic assets to mug punters?

196

Roger 09.23.11 at 4:30 pm

Banks wouldn’t exist without morality plays – otherwise, we would long ago have canned the unpayable debts and the non-recourse loans of homeowners that permitted jingle mail wouldn’t have elicited such moans of outrage from the banking crowd.

Blame is, after all, via Graebner, an ur-form of debt. And what we know about the banks is that they are very keen on having their debts paid back by their debtors, and very keen, when they go oopsy cause of ‘complexity’, to get bailed out, with upper management of course walking away with a goodly pile of cash – more than, to use a blameworthy comparison, all the cash in your typical Tanzanian village.

It is best to use real histories rather than fairy stories about X and Y lending each other money – which can fairly be called a fairy tale for saps. How about a fairy tale for grownups? How about the wonderful story of the Royal Bank of Scotland.
It is a transatlantic tale, and it involves no bad people, just sorta scummy people. Bankers, you know. Now bankers hate being called scummy people. Those words are so hurtful! Luckily, their wounds – for don’t they have feelings? – are more than bound out by a very merciful establishment that makes sure that verbal blame doesn’t translate into anything like not being able to afford a Sofitel hotel room when you want one – why, that would be blame indeed and o so unfair.
So how does this tale go?
The Bank received 541 billion dollars worth of 1 percent and below loans from the Fed over the past 3 years (And for those who are interested in how bankers have garnered some small little recompense for all the mean things said about them in the papers, you should take a gander at Table 8 of the GAO report on the Fed’s Emergency Loan Program. You know, 16 trillion dollars in loans to the financial sector looks awful impressive!)
But why would the Fed give a foreign bank such oodles of money, at such a low low low rate, when it is hard to imagine that the Royal Bank of Scotland would give one of those slimey middle class people who wants a home and is temporarily short of funds a nice one percent loan for twenty times his income? Perhaps the answer is that things are just so darn complex. Or maybe we need the bank so, we just can’t figure out any way whatsoever to loan 16 trillion to ne’erdowell householders.

But in any case, due to the nice non-blaming Fed and the nice British government, in this fairy tale, the RBS was well supplied with cash. And how about the upper management that led it, so royally, down the toilet? Well, it being so complex and all, we don’t want to blame them!9 people in the upper management of RBs, according to this story from 8 March 2011, were well rewarded for all their hard work:

“… the nine key staff – including chief executive Stephen Hester – had been handed bonuses for 2010 of £10m in shares with a further £18m in long-term incentive plans that run until 2014 when their exact value will be known.

… The RBS disclosures came just 24 hours after Barclays lifted the lid on the pay deals it makes to its highest earners – handing five of them £110m.

Hester – whose £2m bonus for 2010 was announced last month and will be paid in shares – is receiving an extra £4.5m in stock through the long-term incentive plan on top of his annual bonus and £1.2m salary. This puts him on track for a pay deal of around £7.7m. For 2009 he did not take a bonus but received just over £4m through the long-term share plan.

Finance director Bruce van Saun is receiving £1.3m in shares for his 2010 bonus and a further £2.8m through the long-term incentive plan.

The largest bonus awarded in shares is the £2.5m handed to John Hourican, head of the investment bank. Next week it is likely to emerge that Hourican has received more than that because he is also being paid in the bank’s debt – although he is not expected to top the £7.7m that Hester could be handed if he meets all his performance criteria.

American-based Ellen Alemany also emerges as a top earner with a £1.1m bonus in shares and £2.5m of stock awarded through the long-term plan. Nathan Bostock, who runs the parts of the bank being shut down or sold off, gets £637,000 in shares for his 2010 bonus and £2m through the long-term plan. Brian Hartzer, who runs the retail bank, had £600,000 awarded in shares for 2010 and £1.9m in the long-term plan.

The 2010 awards are coming from the £950m payout pool agreed with UK Financial Investments, which controls the taxpayer’s 83% stake in the bank, at the time of the Project Merlin deal.

The Merlin deal requires the pay of the five highest earners reporting to the chief executive to be announced and RBS is expected to make those disclosures next week. The nine included in Tuesday’s announcement are expected to be among them.”

Let us concentrate on Ms. Ellen Alemany, with her £1.1m bonus in shares and £2.5m of stock. Now, Ms. Ellen Alemany sounds like a nice enough person. Daughter of a liquor store owner. Making her way to the top by hard work, no doubt. After carrying off her swag from RSB, she was given an honorary degree from a Rhode Island college in May of this year: PROVIDENCE, R.I. – Ellen Alemany, Head of RBS Americas and Chairman and Chief Executive Officer of Citizens Financial Group, Inc. has been named an Honorary Doctor of Business Administration at Bryant University. This honorary degree was presented at the school’s undergraduate commencement on May 21, 2011.

“I am honored by this degree from Bryant University, one of Rhode Island’s great institutions” In its citation, the University commended Ms. Alemany as someone “who in both her personal and professional life exemplifies what being excellent in the world of commerce means. At a time when many financial institutions and their leaders have failed to merit public scrutiny and approval, you make it a point to be worthy of the trust of your customers, employees, and your leadership team.
“Those who are familiar with you say that even before the financial crisis you were thought of as an authentic banker—a person with an unending commitment to excellence and accountability. To this end, you re-launched the corporate campaign, GOOD BANKING IS GOOD CITIZENSHIP, reminding us all why banks exist and the critical role they play in fostering growth and prosperity, that in a most essential way they are meant to serve the communities where they exist. Indeed, good citizenship for you is embedded not just in the name of your company, you see to it that it is rooted in your daily corporate culture.”

“I am honored by this degree from Bryant University, one of Rhode Island’s great institutions,” Ellen Alemany said. “This is a special time for the Class of 2011 and I was proud to be a part of Commencement as this year’s graduates prepared to leave Smithfield for the careers and the life journey for which Bryant has prepared them so well.”

Strangely enough, the honorary award said not word one about the fact that Ms. Alemany was part of the group who presided over one of the UK’s great Bank collapses, albeit as head of an American subsidiary. But bygones are bygones – save when you are caught after a riot with a bagful of cigs. Then it is six months for you, and eviction from public housing.

Perhaps our Bryant University friends are merciful Christians – or egalitarians of Daniel’s stripe, who are shocked at how bankers are blamed in comments columns – but somehow they never asked about that good citizens rhetoric. Let’s roll the tape back to distant 2008, when this happened:

“No comment at the weekend from ROYAL Bank of Scotland officials on reports that its American subsidiary Citizens Financial Group was under investigation by the US regulator for deleting e-mail records vital to an investigation into the mis-selling of financial products to the elderly.

Two New England newspapers reported last week that the Securities and Exchange Commission (SEC) was involved in an investigation by the Massachusetts state regulator for the alleged “unethical and dishonest conduct” in selling variable annuities.

These are tax-deferred investments that provide periodic payments to investors. They are considered inappropriate for elderly investors as their value rises or falls with the underlying investments, usually stock or bond mutual funds. Gaining access to the fund carries a hefty surcharge.

Citizens chairman Larry Fish, who earned £2.3 million last year and whose multi-million dollar “secret” bonus scheme was attacked at the RBS annual meeting in Edinburgh in April, has defended Citizens Financial as “an ethical entity”, but has refused to comment on the details of the state investigation, or whether the SEC was involved.

Massachusetts secretary of state William Galvin accused the bank of not co-operating with the inquiry.

The Massachusetts Securities Division, which regulates banks in neighbouring Rhode Island, where Citizens Financial is based, lodged a complaint against its brokerage arm, accusing it of failing to preserve e-mail crucial to the variable annuities inquiry.

The complaint said Citizens “failed to preserve e-mail communications related to its business as a broker-dealer, despite having an affirmative obligation to do so”. The lost e-mail has “substantially and severely impeded” the investigation into the sales of variable annuity investments to elderly customers, Galvin’s office said.

It had filed an earlier complaint in February, accusing Citizens of violating securities laws in connection with variable annuity sales.”

Now there are those who might look at this as perhaps a mark of systematic corruption. There are those who would enter into the court of public opinion the thousands of cases of fraudulent docs that have been submitted to the courts by the banks in America, intent on repossessing the homes of that greedy middle class that was up to their eyeballs in cheating their betters. But those people are naive queens in some morality play! Because what it is, see, is, its complex.

197

Daniel 09.23.11 at 4:31 pm

There really hasn’t been a major re-regulation of the system Daniel. Well, not ‘major’ in any sense anyone from outside the finance sector might recognise as major.

The complete operational and financial separation of investment banking from retail doesn’t count as “major”? Tough crowd.

198

Lee A. Arnold 09.23.11 at 4:32 pm

Daniel, I tend to agree with you on this one, (but goshdarnit I really need somebody to BLAME). The basic problem as I see it is that money is a medium of exchange to let people work in specialized occupations, and to get them into houses and to get food on the table, but money is also (and this is a different function) a commodity which itself can be speculated upon. So we end-up with derivatives-overleveraged private financial institutions which, when a bubble pops (whomever its malefactors were), need to be bailed-out in order to preserve the “medium of exchange” function for the non-financial population, which is to say most of the people. If Greece takes the overexposed European banks down and the overexposed U.S. banks follow, then we won’t be out of the bad economy yet for another long term. Yet welfare states are always going to grow bigger because in normal times enough people become dispossessed in the churning of real (as opposed to financial) jobs that there is a continuous social problem. Now I am not telling you anything you don’t already know. And of course people have always distrusted and hated bankers because they don’t understand the mechanics in your comment #120 but they realize that bankers are making a lot more money doing a lot less physical labor for a job that, by that definition, is a lot less important. Most people would read your comment #120 and not have any idea of the things you are writing about. So another big question is how policymakers will be elected to do the correct thing, elected that is by voters who don’t understand the basics. Meanwhile the global system is getting bigger and so bubble-burstings will likely hurt more and more of those voters. Bankers are in the industry that gets the first bailout, and afterward the bankers do not, as an industry group, protest the austerity measures that prop-up the value of their own assets. So I think the problem is currently on them. What does the financial industry intend to do that rectifies the situation? Nothing?

199

Dave 09.23.11 at 4:32 pm

Bankers!

“Let’s toast to all the jobless hippies protesting on wall street and the enitre financial distric about god knows what. They have shown vallient effort and even though we hate them lets give them a free shower! (they havent showered in weeks) So… Tomorrow at 4pm we will be having a byob champagne toast/shower to welcome all the protesters and bathe them in good riddence.”

But bankers are nice, you guys, they just want to get through these hard times together with the rest of us. No hard feelings.

200

Tom 09.23.11 at 4:43 pm

“Most people would read your comment #120 and not have any idea of the things you are writing about.”

Yeah, I mean, it was so horribly “complex”, no way I could possibly understand. Stop arse kissing, Lee.

201

ajay 09.23.11 at 4:43 pm

I was working hard on the general issue for the preceding five years, and it is therefore from a position of some knowledge that I say that it was not obvious, as late as 2005, that US housing was a bubble.

“I was studying this issue really hard, as was my job, and I missed it” doesn’t really lead to the conclusion “therefore it wasn’t obvious” so much as “boy, I really screwed up”.

Standard & Poor’s (of all people) were running stress scenarios on the US mortgage industry based on the assumption that the housing market was in a soon-to-burst bubble in mid-2005.

202

CharlieMcMenamin 09.23.11 at 4:44 pm

@198
We have Glass–Steagall in the UK? Who knew? I thought the Vickers Report had been kicked into that long grass over there, conveniently the other side of the next election.

203

ajay 09.23.11 at 4:45 pm

The complete operational and financial separation of investment banking from retail doesn’t count as “major”?

It hasn’t happened yet, it might not happen, and even if it does it won’t happen until 2019. So yes, in fact, there really hasn’t been a major re-regulation of the system. What there has been is a piece of paper with things written on it by a person.

204

Steven 09.23.11 at 4:45 pm

Daniel #185:

I only brought up the bloody Greek pensioners in order to point out what silly and/or repulsive consequences this business of looking for villains can have.

Oh, I see, you didn’t mean it? Okay! But the point about certain other actors having vastly more power and information than Greek pensioners did is still perhaps germane, even for someone who isn’t looking for a “morality play”, a desire for which I don’t think I’ve ever expressed outside a university bookshop.

205

bdbd 09.23.11 at 4:45 pm

Luyendijk asks, “The question is: are you going to try to separate the bad apples from the good ones, perhaps even indirectly encouraging the good ones to take on the bad ones, or are you going to angrily advocate throwing the entire apple basket out of the window? “

I’m tempted to say no, punish them all, out the window with them, and let Mammon sort them out.

206

Lee A. Arnold 09.23.11 at 4:46 pm

Tom #200, then you are a complete idiot of a different type. Run Daniel’s comment #120 past the first 20 people you meet on the street, and get back to us with the results.

207

Tom 09.23.11 at 4:46 pm

@201

Quite. And the fact the whole edifice was built around one key assumption that there would never be an across the board drop in house prices in the US. Suggests a certain lack of vision in the scenario planning dept.

208

Salient 09.23.11 at 4:46 pm

Ok, so I get the part where you’re channeling Marx, but the rest is inscrutable to me.

There was a systematic defrauding of a helluva lot of people—of consumers, of homebuyers, of securities-purchasers, and of workers with retirement accounts. This was indeed, as you point out, systematic, indicating a deep problem with the coercion imposed upon loaners and/or securities-bundlers.

In this period of systematic defrauding, there were plenty of crimes committed by individuals who remain unknown (or we can euphemise and say ‘lots of rules enshrined in law that were intentionally not followed in letter or spirit’), and there were exploitations that should have been criminal (and should be criminal henceforth). We don’t have a good understanding of who all did this, and nobody (no executive with jurisdiction) seems to be investigating (the ‘seems to be’ is doing a lot of work here since this really is a matter of perception).

I wonder if the UK did a better job of investigating and prosecuting crimes and malfeasance than the US did. Around here, it’s talking-head conventional wisdom that nobody was fired, nobody ought to have been fired, record-high bonuses were paid to everybody including those who bundled and disguised junk as valuable, and if we’re not sending anyone to jail, maybe we could hold the malfeasants to account by withholding part of this year’s bonuse—NO THEY DESERVE THOSE BONUSES AND MORE. (Yes, in all caps.)

The ‘burn the banksters’ sentiment is largely a response to that: generating a severe recession and massive unemployment worldwide by packaging junk as valuable is self-evidently awful when Toyota does it, but somehow okay if it’s JP Morgan?

…of course, we wouldn’t blame a Toyota worker for bad design, we’d blame the engineer.

But we have no understanding, in banking, of who was an engineer with culpability and who was a drudge-worker with no culpability. It’s impossible for us to know who among y’all were advocates for, and participants in, the systematic defrauding of consumers. And we remain completely ignorant, even those of us who try to keep up on this shit, which is like a full-time job as it is. What is 1000x scarier is, nobody in government or industry seems to be interested in discovering who the engineers are and curtailing their power. Nobody seems to want to find the crooks and disempower them. (Again, ‘seems’ is important.) So forgive our broad brushes, please. We’re trying to make sure politicians don’t feel comfortable just papering over the systematic defrauding of a helluva lot of people, and ignoring holding anybody to account for the resources they extracted from the economy through defrauding others.

209

mpowell 09.23.11 at 4:47 pm

I want to echo Hektor @178 sentiments and add some of my own.

It is unfortunate that people are throwing so much red meat to Daniel here, arguing about who was ‘really responsible’ for the mortgage crash. I don’t really see any point to this line of argument because my view is that we have an underlying social/economic problem where stagnant median wages have led to a mismatch between household budget sustainable consumption and available production. This is bound to lead to nasty recessions in one form or the other regardless of how well regulated the system is. The reason it is very convenient for Daniel to get distracted by who is really to blame for the mortgage mess is that the financial class is the obvious culprit for extracting enough wealth from the system to significantly drive that wage stagnation process. The profit growth in the financial sector over the past decade matches up quite well with the expanding discrepancy between productivity and median pay in the US economy. And whether they’ve ‘earned’ it or not (and I certainly don’t believe they have), the situation is now unstable and we need better wealth redistribution policies or some kind of new monetary understanding to deal with the situation. Or we can take whatever steps are necessary to shrink this unproductive, bloated financial sector.

And this is another point that ought to be made. Whatever Cohen may have argued, the last time the US took a significant turn towards egalitarianism it was on the basis of a political movement whose leader (FDR) was quite willing to publicly demonize elites. So the argument that egalitarian ends cannot be achieved through the rhetoric of class warfare is just not defensible, in my opinion. I am not sure what the experience has been in other countries, though, so if anyone wishes to share, I am quite curious. If the UK is taking steps to regulate the financial sector, well, that sounds like a good start. Hopefully, they are taking the right steps. It is really quite a hard problem. But I doubt it would be possible to even begin without a substantial public consensus that, seriously, something needs to be done about those bankers.

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OCS 09.23.11 at 4:47 pm

But there just aren’t enough genuine bad actors to satisfy the crowd. Particularly since, as the link in the original post and this comments thread both show, the appetite for moral condemnation is pretty much insatiable, and the level of interest in what might constitute a sensible plan for dealing with the financial sector surprisingly low.

In a general sense I’m sympathetic to your argument — I tend to be an “incentives matter” kind of guy myself. If you set up the incentives for a particular thing, you’ll get more of that particular thing. What’s the point of blaming the person who responds to the incentive?

But what makes the case of the financial industry so maddening is that the industry worked so hard and so long to set up the very incentives they were responding to. And after the crisis they continue to work very hard to prevent the kinds of regulations that would remove those harmful incentives and restore some stability.

I would personally much prefer that after the crisis we as a public, through our governments, had cleaned house without any particular rancor. “Sorry, gentlemen. We trusted you to manage our financial sector and you crashed the economy instead. We’ll have to take over. Now that you’re all broke maybe you can get jobs as book keepers or something.”

But the people responsible didn’t suffer any meaningful consequences — I’m guessing none of those fired bank heads are struggling to pay their mortgages, for instance, as many of their former customers are.

You can talk about systemic problems. But when the people who set up the system, reaped massive rewards from the system, broke the system, and still prevent repair of the system also escape meaningful consequences … sorry, I don’t see that any response but anger is possible.

211

CharlieMcMenamin 09.23.11 at 4:51 pm

And another thing.
Vickers just deals with the banks per se. it says nothing about very important other parts of ‘the system’ , such as hedge funds and consumer finance. Just saying, given that I do actually agree this is a systemic problem.

212

Daniel 09.23.11 at 4:54 pm

I’m guessing none of those fired bank heads are struggling to pay their mortgages, for instance, as many of their former customers are.

There’s a lot of back and forth between “bankers” and “bank heads” here. I can certainly confirm that a lot of the people fired by the investment banking industry over the last three years are indeed struggling to pay their mortgages. It’s pretty much a given that if you’re unemployed and you’ve got a mortgage, you’re going to have trouble with your mortgage.

213

Daniel 09.23.11 at 5:02 pm

But the point about certain other actors having vastly more power and information than Greek pensioners did is still perhaps germane

I would query “vastly more power and information” here. The Greek public sector workers’ unions had a lot of information about the capacity of the Greek state to collect taxes and borrow. If you’re going to say that Adam Applegarth ought to have turned down three out of every four mortgage applications he received, at random (which is what Northern Rock would have to have done), then that’s a point of view, but if you’re saying that then you would certainly need to say that the Greek unions and pensioner organisations should have taken a different line negotiating with the government.

(You can see that I’m equivocating wildly between individual pensioners and workers, who clearly weren’t involved in the actual decisions, and political leaders who were! But so is everyone talking about “bankers”!)

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Steven 09.23.11 at 5:03 pm

I can certainly confirm that a lot of the people fired by the investment banking industry over the last three years are indeed struggling to pay their mortgages.

Luckily, however, we can apply your logic re American subprime borrowers here, and conclude that it is the bankers’ own fault for making the bad decision not to save enough while they were earning zillions.

215

Steven 09.23.11 at 5:08 pm

You can see that I’m equivocating wildly between individual pensioners and workers, who clearly weren’t involved in the actual decisions, and political leaders who were! But so is everyone talking about “bankers”!

Well, yes, I tend to like the “political leaders = the real villains” line myself. But then someone is bound to pop up and say, “But who are the political leaders in hock to? The ‘bankers’!” And that would not be entirely erroneous.

216

SamChevre 09.23.11 at 5:10 pm

If there had been any meaningful lending controls (commission claw-back if loan goes tits-up in under two years; banks required to hold at least some portion of their mortgages) Bungo would have been refused a loan at some point.

Not so long as the loan was perceived, by everyone from Barney Frank to Franklin Raines to the next-door neighbors to the banker making it, as entirely safe–which it would have been in any of the previous 25 years.

That’s the problem with bubbles, and especially with bubbles in a fractional-reserve banking system. If people thought the investment was risky, there wouldn’t BE a bubble.

Now, you can say that bubbles and bank runs mean we ought to go back to a gold standard and 100% reserves. Or you can say that you need an FDIC for the shadow banking system. But saying, “banks are horrible–they’re subject to bank runs” is a ridiculed minority position.

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Steve LaBonne 09.23.11 at 5:10 pm

But what makes the case of the financial industry so maddening is that the industry worked so hard and so long to set up the very incentives they were responding to. And after the crisis they continue to work very hard to prevent the kinds of regulations that would remove those harmful incentives and restore some stability.

This should just be repeated as a response to whatever blather Daniel comes up with, as long as this thread lasts.

218

Barry 09.23.11 at 5:10 pm

Daniel: “I only brought up the bloody Greek pensioners in order to point out what silly and/or repulsive consequences this business of looking for villains can have.”

Steven: ” Oh, I see, you didn’t mean it? Okay! But the point about certain other actors having vastly more power and information than Greek pensioners did is still perhaps germane, even for someone who isn’t looking for a “morality play”, a desire for which I don’t think I’ve ever expressed outside a university bookshop.”

I was going to reply, but the sheer f*ck-headedness of Daniel’s positions here is wearing me down. And leading me to the position that the punishment of innocent banking people is perhaps justified (so long as the higher-level ones get their firster and harder).

In the end, the only thing which will produce a mind-change in this field is an even worse catastrophe, combined with very harsh and very widespread collective punishment.

I fear that it’s like WWI; we’ll have to go through worse, and change things the way that we changed Germany – by killing so many men that the survivors were chastened, and the leadership either dead, fled or discredited.

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Daniel 09.23.11 at 5:10 pm

In many cases, yes people did make bad decisions about having a lifestyle that required big bonuses to support it and not saving enough. Although of course I do think there’s a pretty important distinction to make between “this bad event was partly caused by a bad decision X made” and “this bad event is X’s fault” and have said so quite a few times on this blog. Because I don’t think that mistakes made in economic decision making have particular moral significance in the absence of other factors indicating dishonesty, or to put it pithily and stylishly, “economics is not a morality play”.

220

Steve LaBonne 09.23.11 at 5:15 pm

Because I don’t think that mistakes made in economic decision making have particular moral significance in the absence of other factors indicating dishonesty, or to put it pithily and stylishly, “economics is not a morality play”.

Other factors indicating dishonesty (or if you prefer, bad faith) were and are present. For instance, “But what makes the case of the financial industry so maddening is that the industry worked so hard and so long to set up the very incentives they were responding to. And after the crisis they continue to work very hard to prevent the kinds of regulations that would remove those harmful incentives and restore some stability.”

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Alex 09.23.11 at 5:19 pm

Also, there’s a difference between “you should have saved enough to withstand four years of unemployment, so fuck off and die” and “you shouldn’t have borrowed so much money to bet on house prices going up”. The first statement is morally disgusting (especially as you’d have to be…a banker), the second isn’t.

222

straightwood 09.23.11 at 5:19 pm

Daniel seems to have a reading comprehension problem. He has been told, plainly and repeatedly, that many of his colleagues acted in BAD FAITH in their business dealings. That is, they engaged in deliberate deception and misrepresentation of the value of securities that they sold for handsome profits. This may be “normal” from his insider’s perspective, but in the larger world, such conduct is reprehensible.

Trolling means never having to say you are sorry, and Daniel is an exemplary troll.

223

Tom 09.23.11 at 5:25 pm

I wonder if Daniel has a bet on whether or not he can break the CT comments record? This might explain the continued bullsh**ting and evasion.

224

OCS 09.23.11 at 5:28 pm

There’s a lot of back and forth between “bankers” and “bank heads” here. I can certainly confirm that a lot of the people fired by the investment banking industry over the last three years are indeed struggling to pay their mortgages.

This is where I concede your point. Not everyone who ever worked in a bank is responsible. In fact, no one “banker” is responsible. To the extent that people are spitting on you in the street, or saying rude things at cocktail parties simply because you’re a “banker”, I sympathize.

But to suggest that no one should be angry at anyone — hey, stuff happens! — is the wrong conclusion. In the first place, I think there should be a lot more effort to focus the blame on particular banks, bank heads, lobbyists, lawmakers and regulators. But that sort of effort has been met with complaints about crowds with pitchforks.

You argue that responsibility is diffuse, and I agree with you. So maybe my anger should also be diffuse — my anger ranges from mild annoyance with the bit players to actual sympathy with the laid-off investment bankers (negative anger) to fury at those who either knowingly or with callous disregard of the consequences helped bring this about and still made out like bandits. But all that diffuse anger still adds up to a real sense of rage.

Maybe what it boils down to is that the class of non-bankers gets to be really, really angry at the class of bankers. Then you and I can still like each other personally, and I can still feel a justified anger against your industry, recognizing that no one player deserves all of my anger and some deserve none. And I can hope this class-based anger helps lead to meaningful reforms.

225

Lee A. Arnold 09.23.11 at 5:30 pm

Mpowell #208: ” Whatever Cohen may have argued, the last time the US took a significant turn towards egalitarianism it was on the basis of a political movement whose leader (FDR) was quite willing to publicly demonize elites. So the argument that egalitarian ends cannot be achieved through the rhetoric of class warfare is just not defensible, in my opinion.”

Good point, although I would count Medicare (1965) as a significant egalitarian step even though may not appear so, because its final defense is not played-out yet. But it looks to me like Obama is preparing to reassemble the New Deal coalition in order to rerun the 1936 re-election, when FDR swept past Alf Landon to a second term, even though the economy was sputtering. A first question for Mitt Romney (since it appears that Perry has begun to sputter too, which I did not expect,) would be why Mitt pays a lesser tax rate on his capital gains than his secretary pays on wages.

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Gareth Rees 09.23.11 at 5:35 pm

Adam Applegarth ought to have turned down three out of every four mortgage applications he received, at random (which is what Northern Rock would have to have done)

Why “at random”? Northern Rock wrote in their last successful securitization prospectus (see page 104):

“In May 2001 [i.e. after Applegarth became Chief Executive] the seller introduced its fast track program to prospective borrowers for certain mortgage loan products. If a mortgage loan is judged appropriate for the fast track program, income is accepted as stated by the prospective borrower without further proof once positive identification of the borrower is provided and the borrower has passed the seller’s credit scoring test [...] In March 2004, the seller discontinued the fast track program in favor of a new set of procedures under which verification of a borrower’s income was not required in certain circumstances. For mortgage loans with an LTV ratio no greater than 85% (or no greater than 80% in the case of mortgage loans in excess of £500,000) a borrower receiving a medium to high credit score did not need to provide proof of income.”

The collapse of confidence in the quality of these “liar loans” was an important factor in Northern Rock’s failure to find anyone to underwrite the 2007-3 tranche of securities (even Lehman Brothers wouldn’t touch it). Applegarth should have anticipated this possibility, and avoided adopting these procedures in the first place.

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William Timberman 09.23.11 at 5:37 pm

Okay. I agree — as I did in my first comment on this thread — that Daniel, and all the little Daniels who keep repeating …et nunc, et semper, et in saecula saeculorum. Amen — are not Rick Santelli. What I do not agree is that Rick Santelli is not Rick Santelli.

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Daniel 09.23.11 at 5:38 pm

He has been told, plainly and repeatedly, that many of his colleagues acted in BAD FAITH in their business dealings.

and many more didn’t, and you (and you and you and youuuu bap-a-bahh) are not making this distinction and this is my point. If you are going to make your case for bank regulation or egalitarian politics in general dependent on finding much more criminality than there actually was, you’ll be reliably disappointed. Also; if you are going to rely on any sort of financial regulation to abolish asset bubbles and consequent crashes, also disappointed. Managing the cycle is the job of central bankers. Who believed, in many ways sensibly, that this is what they were doing – specifically, trying to prevent the 2001 recession turning into a slump.

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Cian 09.23.11 at 5:42 pm

There’s something a little bit pathetic about doing a job that pays a very high salary and demanding love.

People hate bankers because they’re paid too much, and they’re mostly wankers. You want to be love, do something else. But please stop complaining, its undignified.

230

Tom 09.23.11 at 5:43 pm

“If you are going to make your case for bank regulation or egalitarian politics in general dependent on finding much more criminality than there actually was, you’ll be reliably disappointed. “

From which one might conclude that if, given the size of the economic catastrophe created to a lesser or greater extent by banks, this wasn’t the result of criminal malfeseance, one can only marvel at the guile of the industry in lobbying so effectively to make it so.

231

Guano 09.23.11 at 5:44 pm

Why do the worst railway accidents tend to happen in or just after wartime? Railways are very heirarchical organisations with strict rules. So is the military. Normally they are entirely separate organisations so there is no problem. Railwaymen don’t take trains on lines over mountain passes when they know that they are too heavy, just because a passerby suggests that it might save time to take a traion across the pass without dividing it. However some of the worst railway accidents ever have happened with troop trains, when the military forced railwaymen to take heavy trains across mountain passes by waving their guns about. One of the worst railway accidents ever happened in the Alps just after WW1 when the military forced railway staff to do something they knew was against the rules.

So does the finance industry have rules against misrepresenting the value of the products in which they are trading? If not, why not? If they do, why did they break those rules? Did another stronger institution hold a gun to their head and make them break the rules? Who did it? When did it happen? Who was it that forced them to misrepresent the value of products so that the people could have homes?

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Daniel 09.23.11 at 5:46 pm

#225 Gareth – IMO that was an awesome piece of Monday morning captaincy by the inquiry commission. In actual fact (I know, as Max Boyce says, cos I was there), although Fast Track was a dumb idea and I said so in a meeting at 2004, you couldn’t sell any mortgage paper in the second period in 2004. The only way Northern Rock could have survived was to have been about a quarter of the size (that way it wouldn’t have been so absurdly reliant on securitisation markets) and the only way it could have done that would have been to have had a turn-down rate even higher than it actually had.

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Daniel 09.23.11 at 5:48 pm

But please stop complaining, its undignified

since I haven’t actually written on the subject (that the bubble and crash were macroeconomic, policy-caused phenomena rather than specifically caused by bankers) since 2008, I have not really taken up all that much of your time with my repulsive whining. As I see it, given the amount of crap I take, it’s more or less reasonable to allow me to have a go back once every three years.

234

SamChevre 09.23.11 at 5:49 pm

To prevent the kinds of regulations that would remove those harmful incentives and restore some stability, come, so far as I can tell, in only one variety. Require a 10% down, in cash.

Notably, no one is proposing this. And notably, it would hurt homeowners far more than bankers.

235

Gareth Rees 09.23.11 at 5:58 pm

you couldn’t sell any mortgage paper in the second period in 2004

Do you mean 2007 here?

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Daniel 09.23.11 at 6:01 pm

Yes, I must have done. And “quarter” when I meant “period”.

237

Marc 09.23.11 at 6:02 pm

No reselling of loans would make quite a lot of difference, in the sense of giving banks a real incentive to make good loans. And we survived for many moons in a finance system with required significant down payments for houses, and without elaborate and confusing financial products for the mass consumer market.

I can see the good from other forms of innovation, but what have ordinary people gained from the massive expansion of the financial sector? We’ve enabled a lot of legalized gambling, we’ve made a cadre of people very rich, and the rest of us have been saddled with huge bills.

Daniel also conveniently ignores the way that the huge bill from the bailouts has been used to inflict austerity on teachers, the poor, and others who had very little to do with the meltdown. He can pretend that they aren’t linked, but the wealthy here have been very explicitly making them so.

238

Nick L 09.23.11 at 6:13 pm

tl;dr Daniel: Mistakes were made

239

Dipper 09.23.11 at 6:17 pm

@84 hidflect – I assume you are just highlighting, in an ironic way, the touchiness and persecution complex that characterises the Professional Northerner?

from a fellow PN …

240

Mitt 09.23.11 at 6:25 pm

Proverbs 22:16
He who oppresses the poor to make more for himself or who gives to the rich, will only come to poverty.

241

Frank in midtown 09.23.11 at 6:29 pm

Every snowflake banker pleads innocent in an avalanche.

242

Daniel 09.23.11 at 6:41 pm

you can’t prevent avalanches one snowflake at a time.

243

Bruce Wilder 09.23.11 at 6:48 pm

Daniel’s post reminds me a bit of Josef Oehmen’s fatuous bit of self-serving complacency, which went viral in the early days of the Fukushima disaster, titled something like, “Why I am not worried about Japan’s nuclear reactors” and explaining why the news media were hysterical and ill-informed, and really, there was nothing to worry about. Pro-nuke groups loved it, and, tellingly, it was promoted by CNBC’s Jim Cramer.

Caught out by reality, Dr. Oehmen followed up with recursive, meta-level, smug, self-regarding navel-gazing of an intensity, which puts CT tireless efforts in that vein to shame.
http://bravenewclimate.com/2011/03/29/would-i-have-believed-myself/

Perhaps it should be considered a model essay.

244

Substance McGravitas 09.23.11 at 6:48 pm

Yes, it’s a poor analogy, because none of the other snowflakes can listen to that one snowflake who could say “Stop doing that.”

245

ScentOfViolets 09.23.11 at 6:59 pm

In many cases, yes people did make bad decisions about having a lifestyle that required big bonuses to support it and not saving enough. Although of course I do think there’s a pretty important distinction to make between “this bad event was partly caused by a bad decision X made” and “this bad event is X’s fault” and have said so quite a few times on this blog.

And as you’ve been told many, many times already, the fact that these people made bad decisions (as opposed to those whose actions were really criminal) is not the problem. Really.

The problem comes about when there are no consequences of any significance for those bad decisions. Especially when these same people are gung-ho capitalist types who argue that the machine works so well because of it’s brutal emulation of natural selection: good actions are rewarded, bad actions punished (and no, don’t try to pretend I’m using the word “punished” as anything more than a metaphor for poor variations being weeded out and good variations thriving and reproducing).

And the fact of the matter is, banksters as a group are laboring mightily to avoid those consequences, even as others with no significant culpability bear the costs of those mistakes.

Since this seems to be the opinion of just about everyone I know, and what I’ve read in the blogs and funny papers, and also the people who are commenting right here, I don’t see any evidence to support your bald statement that so much of the rage against the banksters is just so much vague abuse.

So where’s your evidence that this is the case?[1] You being an upstanding scientific sort of rationalist guy and all ;-)

Because I don’t think that mistakes made in economic decision making have particular moral significance in the absence of other factors indicating dishonesty, or to put it pithily and stylishly, “economics is not a morality play”.

No, they don’t have any particular moral significance. But doing everything you can to avoid paying for those mistakes does introduce a moral component into the discussion. And when you’re preaching the “everyone must pay” sermon even when it’s obvious to all that you’re most definitely not paying, well, can you say “hypocrisy”? That particular sin is a particularly unforgivable one in the minds of most people.

[1]Notice that Daniel’s position is so indefensible that he pulls the classic troll roll: demand that everyone else convince him that he is wrong, and then say that if no one can make him say he’s wrong, he wins. In fact, this stereotyped behaviour sorta defines the whole genre, doesn’t it?

246

Frank in midtown 09.23.11 at 7:13 pm

yes, it is ashame that there weren’t some snowflake regulators for the innocent snowflakes to speak with.

247

ScentOfViolets 09.23.11 at 7:18 pm

Also; if you are going to rely on any sort of financial regulation to abolish asset bubbles and consequent crashes, also disappointed. Managing the cycle is the job of central bankers. Who believed, in many ways sensibly, that this is what they were doing – specifically, trying to prevent the 2001 recession turning into a slump.

Which is just so silly on so many levels, and Daniel should know better. In fact, we have this piece from Krugman, courtesy of the wayback machine:

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

What’s particularly hilarious about Daniel’s line of gaff is that even now the Fed refuses to raise interest rates despite what traditional economic theory says, and despite people like Krugman who constantly beg, plead, wheedle, and exhort them to do so. Their excuse? Those oh-so-aptly named “Confidence Fairies” that we’ve heard so much about over the last couple of years.

But I guess that this is just yet another case of the Fed honestly trying to do what’s right for The People and honestly screwing up yet again in a way that favors the banksters ;-) Given that the Fed has an official mandate to avoid unemployment, and that these sorts actions fall within their economic purview, Daniels cries of “pity me, pity me!” ring especially false.

248

Frank in midtown 09.23.11 at 7:24 pm

I was wondering do the terms, channel stuffing, round-trip transactions, and parking mean anything over there? Never seen derivatives used to smooth out earnings? Our bankers seem to have had a problem with out-of-control auditors forcing them to use these techniques. I’m sure it was to help the poor afford housing, and had nothing to do with hitting bonus targets.

249

marcel 09.23.11 at 7:26 pm

daniel wrote:

you can’t prevent avalanches one snowflake at a time.

In that case, can we just melt the whole lot of them wholesale?

Also, ScentofViolets: Where has Krugman asked the fed to raise interest rates? I hope that this a “typo”, because otherwise it must be intended as irony, but it goes right by me.

250

Bernard Yomtov 09.23.11 at 7:27 pm

I think ScofV nails it here, as did (let’s not forget) OCS at 157.

Daniel seems to be arguing that it’s unfair to regard him or most of his coworkers as criminals, and that doing so does not benefit egalitarian politics.

But much of the anger is directed at the lack of consequences for bad decisions, and in fact the rich rewards paid to so many of those who made them. This has nothing to do with criminality, in most cases, and nothing to do with egalitarian politics, except insofar as it is egalitarian to expect that those whose bad decisions did so much damage ought to suffer financial consequences.

251

Sebastian H 09.23.11 at 7:34 pm

The strangest thing about this post is that Daniel demands a level of sympathy and understanding that he rarely extends to his critics in other areas.

But substantively: assuming we have finally gotten to the point of his incredibly cryptic post with this summary “If you are going to make your case for bank regulation or egalitarian politics in general dependent on finding much more criminality than there actually was, you’ll be reliably disappointed.”, he is still being silly.

Crimminality is a very narrow word when so many of the laws in question are written or strongly influenced by the bankers in question. This is the classic public choice problem written in the blood of the middle class.

Expand it slightly to ‘wrongdoing’, and I think we have plenty of meat to make the case on.

Was it banker *wrongdoing* that hid the Greek financial situation? Yes.

Was it banker *wrongdoing* which caused AAA tranches to be filled with shit? Yes.

Was it banker *wrongdoing* to insist that everyone else take a haircut for ‘bad choices’ even in areas where the bankers were the most expert? Yes.

Was it banker *wrongdoing* to insist on low interest rates while unemployment climbs? Yes.

Was it banker *wrongdoing* to portray the haircut as needing to come wholly from pensioners who bailed them out rather than bondholders who actually took the risks? Yes.

I don’t know for sure if there is lots of criminality, but there continues to be enormous amounts of banker wrongdoing.

252

Barry 09.23.11 at 7:36 pm

Adding on to Bernard’s comment.

Daniel: (re:bankers acting in bad faith)

” and many more didn’t, and you (and you and you and youuuu bap-a-bahh) are not making this distinction and this is my point. “

Those who ordered the bad faith (actually, criminal fraud) are getting away with it, which leaves the rest of use with two major options:

a) Let everybody get away with it.
b) Collective punishment.

As I’ve said above, I don’t think that this will happen until the next crash – which the people running the banking sector are doing their d*mnedest to bring about.

253

marcel 09.23.11 at 7:41 pm

Sebastian H Was it banker wrongdoing to insist on low interest rates while unemployment climbs? Yes.

Huh? Sounds like good old anti-slump policy to me. Should the Fed/BoE be/have been raising interest rates in the face of rising unemployment? I know that many, many people other than DFHs have long been urging this and are urging it now, moralizers and deficit worriers as Krugman calls them, but that is just going to make things worse. When you’re in a hole the first thing to do is to stop digging.

I must not be understanding part of the message here, but I sure as hell cannot figure out what I might be missing.

254

piglet 09.23.11 at 7:50 pm

“and nothing to do with egalitarian politics, except insofar as it is egalitarian to expect that those whose bad decisions did so much damage ought to suffer financial consequences.”

It is in fact a question of egalitarianism because when bankers expect the public to insulate them from the consequences of their industry’s mistakes, they are in fact asking for special treatment. Manufacturing workers losing their jobs to outsourcing don’t get sympathy. They are not criminals. They didn’t even make any personal mistakes or act incompetently or negligently. Still, they don’t get any sympathy for their bad luck. Most bankers are not criminals although some are, and not all of them were incompetent or negligent although many were. Still, even the “innocent” among the bankers shouldn’t expect the sympathy that they deny to the rest of us when something bad happens.

255

Salient 09.23.11 at 8:00 pm

As I see it, given the amount of crap I take, it’s more or less reasonable to allow me to have a go back once every three years.

Fair enough (though it did draw an awful lot of fire your way, as reprieves or stress relievers go). A quick endorsement of the comments OCS took the time to tactfully articulate—thank you, OCS—and a request that you please offer an answer to Guano’s interesting questions regarding institutional structure, and… OK. In deference to the reasonableness of ‘let me have a go once every three years,’ I’ll make this the last bit of crap you have to take about this, from me anyway:

The system was horrible, it made a number of people quite a lot of money, it’s natural to be upset at a group of people who made a lot of money via a horrible system, and it’s inevitable that some folks undeserving of ire will be lumped in with those who deserve it. I’d be much less sanguine about that if, instead of generalized imprecise-but-untargeted tongue-lashing on Internet forums and such, the ire took the form of lynching or disappearance-kidnapping or arson or whatever (in which cases I’d be springing to your defense!).

256

Bruce Wilder 09.23.11 at 8:06 pm

“if you are going to rely on any sort of financial regulation to abolish asset bubbles and consequent crashes, also disappointed”

There’s nothing like a smug assertion powerlessness to mollify the already frustrated.

257

geo 09.23.11 at 8:53 pm

Daniel @185: since my first post on the subject on CT, my candidate for the blame has been “the general tendency of complex systems to have complex and unpredictable dynamics”

Like the weather?

258

Bernard Yomtov 09.23.11 at 8:58 pm

piglet@251,

I thought that the part of my comment following “except insofar as” covered your point, but maybe not.

259

Sebastian H 09.23.11 at 9:01 pm

Lol, I let the format take over the message and it got gargbled– That one should have been something more like “Was it banker wrongdoing that encourages the Fed to worry about inflation rather than unemployment in its policies? Yes.

Sigh. Better facts make better rants. ;)

260

Popeye 09.23.11 at 9:05 pm

the fact that if you’re serious about egalitarian politics you shouldn’t be making it dependent on a thesis about ownership of profits, means that if people are so totally hung up on theses about bankers (or capitalists in general) being criminals, it probably isn’t egalitarianism that motivated them in the first place

The primary argument against egalitarianism is based on a thesis about ownership of profits, so this doesn’t really seem that suspicious to me.

261

Dave 09.23.11 at 9:16 pm

Managing the cycle is the job of central bankers. Who believed, in many ways sensibly, that this is what they were doing – specifically, trying to prevent the 2001 recession turning into a slump.

I thought they believed, in many ways ideologically, that people turning their houses into ATMs was just awesome, especially for, ahem, bankers, and they started to make that happen well before the tech bubble.

In the name of egalitarianism, please spare us lectures about the virtues of subprime mortgage lenders and central bankers. The bill we got was already quite enough, thanks.

262

Rich Puchalsky 09.23.11 at 9:43 pm

“Particularly since, as the link in the original post and this comments thread both show, the appetite for moral condemnation is pretty much insatiable, and the level of interest in what might constitute a sensible plan for dealing with the financial sector surprisingly low.”

Oh, great. So I when I say that the nuclear power industry is evidently run by incompetent people who are incapable of designing plants that won’t melt down, that’s “moral condemnation.” When I can’t, myself, come up with a better power plant design, that’s a surprisingly low level of interest in what might constitute a sensible plan. And when I point out that the nuclear power industry couldn’t function without its influence on government and the assurance that the government will bail them out for any accidents that would otherwise bankrupt the industry, that’s me saying that the people in the industry are worse criminals than serial killers. Plus, if I was really interested in good politics around power, I’d see how cheap and self-defeating it was to just blame everything on nuclear. People shouldn’t be angry after a major accident, they should instead pursue abstract, unreachable solutions.

This is CT, folks.

263

dsquared 09.23.11 at 10:06 pm

#254 basically yes. I didn’t think that the idea that periodic crises were an intrinsic characteristic of caapitalist economies was as controversial as it apparently is.

264

Harry 09.23.11 at 10:28 pm

Going back to the comparison with Megan McArdle (92), and since CT regulars were called on (I’m a sometime and I hope soon to be more frequent contributor): there are two big differences between Daniel and Megan. One is that he understands how capitalism works. The other is that he tells us to tax the rich regardless of whether or not they are bastards, and she is opposed to taxing them regardless of whether or not they are bastards. I confess I haven’t read absolutely everything that has been said on the thread so far, but everything I have read by Daniel just seems like wellinformed and smart Marxist analysis (and none the worse for that). I understand why the enthusiasts for capitalism on the thread might want to blame the immoral bankers, but I can’t quite get why the lefties are so eager to blame some bankers rather than a system.

Sure, rich people are often complacent and sometimes evil. But the enemy, as the IMG used to say, is profit.

265

Kal 09.23.11 at 10:28 pm

Bankers are worse than Hitler and if I ever get my hands on you, you’ll die slowly and painfully.

That’s what I’m supposed to say here, right?

266

Bruce Wilder 09.23.11 at 10:38 pm

@260

Oh, by all means, capitalism’s crises are “inevitable” and it is utterly impossible to regulate capitalism in the general interest. And, that’s not the self-serving sentiment of a criminal class, it is respectable opinion shared by everyone with inside knowledge. Because it is all so complex.

Lovely. Simply lovely.

267

ScentOfViolets 09.23.11 at 10:40 pm

Also, ScentofViolets: Where has Krugman asked the fed to raise interest rates? I hope that this a “typo”, because otherwise it must be intended as irony, but it goes right by me.

Whoops! You’re exactly right of course: It’s the Fed that wants to raise interest to “battle inflation” and assuage the confidence fairies. And contrariwise, it’s Krugman who’s pointing out the nonexistence of said confidence fairies and why it would be a bad idea to raise interest rates. And of course – poke in the eye to Daniel – there’s scads of references to this:

But then, Bernanke is also saying that any further expansion would risk provoking inflation, Krugman notes. He continues:

This doesn’t make any sense in terms of his own expressed economic framework. I think the only way to read it is to say that he has been intimidated by the inflationistas, and is looking for excuses not to act.

I’ll quote an additional snippet from this article, something that anybody with a modicum of financial awareness knows:

It’s true – as I pointed out in 2009 – that the Fed has purposefully been encouraging banks to deposit their excess reserves at the Fed (for a profit), rather than loan them out to Main Street:

and:

The Fed could have stemmed the unemployment crisis by demanding that banks lend more as a condition to the various government assistance programs, but Mr. Bernanke failed to do so.

Ryan Grim argues that the Fed might have broken the law by letting unemployment rise in order to keep inflation low:

Given what Daniel does for a living, I’m very, very surprised that he doesn’t know some basic history.

268

William Timberman 09.23.11 at 10:46 pm

Harry, you do remember what even-tempered, objective old Karl-san had to say about capitalists and mill-owners in vol. 1, don’t you? If systems analysis is totally incompatible with an occasional off-color rendition of Seeräuber Jenny’s little ditty, we’re all gonna have a lot less fun in life. So are the starchy-collared guys at the banks, for that matter.

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ScentOfViolets 09.23.11 at 10:49 pm

I understand why the enthusiasts for capitalism on the thread might want to blame the immoral bankers, but I can’t quite get why the lefties are so eager to blame some bankers rather than a system.

I thought this had been covered enough times already from enough different directions that you could not possibly misunderstand what people are saying. Most of us don’t “blame” the banksters for some particular values of blame; they simply want them to be held accountable for their mistakes in the way everyone else is accountable for their mistakes.

Trying to jam “hold accountable for their mistakes in a consistent manner” into the container of phatic “blame” that you (and Daniel) are apparently pushing for here just isn’t going to work.

270

straightwood 09.23.11 at 10:51 pm

I didn’t think that the idea that periodic crises were an intrinsic characteristic of caapitalist economies was as controversial as it apparently is.

These “periodic crises” were supposedly tamed by the enlightened central bankers, but the crises are becoming bigger and bigger. The S&L disaster, the tech bubble collapse, and the mortgage meltdown show an alarming trend line of unsustainably increasing magnitude. Sovereign states are now at risk because they are the last bastion of stability preventing Daniel and his greed-head colleagues from destroying everything.

Greed-heads use leverage, deceit, and illegality to construct temporarily profitable systems of finance that are massively unstable. As long as they can pocket a personal fortune before TSHTF, they don’t give a damn what happens to everyone else. This phenomenon used to be kept in check by functioning regulatory, academic, and journalistic institutions. All of these safety mechanisms have been undermined by the growing political power of the financial institutions, which appear to prefer suicide to cultural change.

Daniel would have us believe that his workplace is populated by decent and honorable people caught up in events beyond their control. This is arrant nonsense, as demonstrated by numerous documented accounts of the events of the last few years. Daniel and his peers were, at the very least, complicit and silent in the face of serious abuses of the public trust. They richly deserve the scorn that continues to be heaped upon them.

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dsquared 09.23.11 at 11:04 pm

Sovereign states are now at risk because they are the last bastion of stability preventing Daniel and his greed-head colleagues from destroying everything.

The sovereign state in question is Greece. In the particular case of Greece, it is actually at risk because it used the windfall made available by falling interest rates after EMU to pay generous pensions and welfare benefits and to maintain a very large and well-paid public sector workforce. Really, shouldn’t this make you think twice about whether your analysis of the crisis as a whole is correct?

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Campfiregirls 09.23.11 at 11:39 pm

My guess is that people who leave comments on a Guardian blog (or elsewhere) do so because they feel like bankers have taken unfair advantage of the middle class, the poor, or whoever isn’t a banker. Perhaps people were misled, but they still bought houses and took out mortgages. Countrywide and Lehman didn’t turn out so well, but the rest of the major US banks are posting nice profits even as they complain that BB’s twist will have them earning less. That aside, my take is that non-finance people are really bad at valuation. If the price or worth of something is whatever someone is willing to pay, congratulations for making someone willing to pay that price. Of course people would get mad if the price no longer reflects the value. One option simply is to not pay or renege on a contract, although it seems that a lot people value personal integrity or honesty over money.

It could be the case also that people did not make any distinction between value in use and value in exchange. Flipping houses was popular in the US not too long ago. Big houses too! Likewise, I see nearly no value in diamonds, but other people do, and if I knew I could sell one (flip it), I surely would because of the value in exchange. I think people would get a better idea of the price they should pay (on just about anything) if they asked themselves if a great number of other people would find something to be quite useful, in which case you’d have something that would not fluctuate greatly in value since a lot of people would be willing to pay such a price for a good or service, or, on the other hand, ask whether value in trade “exceeds” value in use in some way. For example, Michael Jackson’s glove or other sentimental collectibles. Worthless to most people, but someone is willing to pay an exorbitant price.

In short, bankers might not be very nice, but consumers bought and need a lot of products they sell and services they perform. If you want to make them more like regular people, then regulate. Have risk caps or pay caps or ratings agencies that don’t seem like prognosticators. Or stop buying things. Or whine about deficits and debt. Whichever works for you really.

cfg

273

straightwood 09.24.11 at 12:14 am

Really, shouldn’t this make you think twice about whether your analysis of the crisis as a whole is correct?

Do you seriously believe that Greece alone is the cause of the sovereign debt crisis that threatens the EU and the world financial system? Germany could pay off Greece’s debt without breaking a sweat. The sovereign debt problem is much bigger than Greece. The toxic garbage peddled by US and UK banks is sitting in the portfolios of all the major banks of Europe. The “financial products” that enabled Greece, Portugal, Spain, and Italy to live beyond their means were sold very profitably by people who didn’t give a shit about anything but their own personal wealth. They inadvertently built a card house of interconnected, poorly regulated, investments that threaten a disastrous collapse that will wreck the entire EU.

The free market ideology peddled by the financial institutions touted the self-regulating character of their industry, but experience has falsified these claims. The big banks and shadow banks created a Frankenstein out of products crafted by myopic greed, with no consideration whatever for the fate of this monstrous aggregate. You will have to do better than “blame the Greeks,” if you want to exculpate the greed-heads who have plunged the world into recession and threaten the stability of the world economy.

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Dr. Hilarius 09.24.11 at 12:16 am

Sam@216. I can’t say that I’m aware of what loans would have met the approval of Barney Frank. The approval of Franklin Raines is worth less than nothing given his performance as CEO of Fannie Mae.

Loans were being made in 2004 -2007 that would never have been made even a few years earlier, not 25. I watched loans being made on properties where the monthly payments were in multiples of the highest possible rental value. Now rental value may not be the only way of valuing a property but it is at least tied to reality. Buying a house with a $3000 a month mortgage that would rent for $1200 a month, at a time when a housing bubble was clearly in evidence makes no sense. Making such a mortgage only makes sense when done in bad faith.

My only regret is that I did not sell a Hawaiian condo property in 2007 when comparable units were selling for $500K. In 2011 I could purchase the same property today for about $300K. Realtors were touting these properties as money-makers when used for short-term vacation rentals. I ran the numbers on some to show one couple that they would be losing money every month even if the property was rented 365 days a year at unrealistically high rents (and ignoring all repair costs). Banks were happy to make these loans. Appraisers were happy to sign off on insane valuations.

What is left at the end of the analysis is either than the whole system was set up to sell loans certain to fail, with predictable consequences to buyers and the economy as a whole, while enriching the loan originators, or a conclusion that a lot of Wall Street financial wizards actually had sub-room temperature IQs. Then the challenge is to explain how people so stupid came to such high positions.

275

shah8 09.24.11 at 1:11 am

Okay, this is just a whack thread. I can understand that it is reasonable to expect, as *Daniel* has, a ton of animosity for his post.

But still, geez!

Boil it all down to this one point: It is not a liberal or, especially so, a pragmatic/progressive ideal to value the moral outcomes of systems.

I’ve always like this particular Michael Pettis post about “virtuous savers”
http://mpettis.com/2011/06/how-to-become-virtuous-and-save-more/

I think that pressing against the feeling of moral outrage is something people who are actually looking out for the rest of us should do. Moral outrage retains a liquidity even in the hands of its most enthusiastic proponent, and outrage directed at bankers who knows a thing or two about liquidity is probably going to cost you 2 points a week. When you’re up at the fence, encouraging people to join you in your outrage, you transmit the emotion, but not the reasons, and especially not why it’s salient with any sort of precision. This leaves people free to adapt a response, and robs the agitator of a coherent demand for change from an organized political organ.

Next, I like to think I have some familiarity with banking history, and it’s been my distinct impression that mixing morality and animus into the stew contributes to a disaster rather than stop bad people from being bad. I just got through reading Shih’s Factions and Finance in China, and that book really does a number on the concept that the banking industry is especially independent of political (even local politics) processes. While that book *was* about China, when one really thinks about it, one can easily think of some US analogs, like Arthur Burns’ experience in dealing with Nixon, or the banking deregulation in ’79 and ’80 that ultimately led to the S&L Crisis. At the bottom of it all, it’s that solutions create renewed problems, and a successful society *manages* the new problem, and ones after that too. Trying to appreciate a problem through *moral* lenses, or as a result of some personal villainy, encourages superficial fixes that don’t get supervised properly, because when the bad guys are gone, well, they are gone, but the system that produced them still exists, free to run until the next urge to have a purge. Well, I think that the Korean system sucks, and have no desire to see periodic patches driven by outrage rather than a well-maintained system that sometimes lets crooks go free so a fix can be quickly applied.

Lastly, I do have sympathy for the banker…sometimes. Everyone loves people who give out money and hates people who takes away money. Any kind of money officer, banker, treasurer, that sort of thing, has to have a SPINE and insist on a focus for process. Banks in unhealthy societies are some of the most abused institutions around, and while bankers are usually comfortable, any kind of denial of TPTB, and she’s out on the street in a horribly managed economy… I think people *really* underestimate how much grief bankers would catch if they insisted on any number of rational opportunities, like, oh, violate redlining conventions, refuse to give a loan to the son of a muckety-muck’s with the Pets.com business plan, insisting that a business is properly restructured, you get the idea. As such, many average commentators fail to appreciate just how much their way of life costs, especially in terms of chained (for-want-of-a-nail) opportunity costs. These commentators fail to appreciate just how privileged their access to cash was, in a number of ways. This results in people making demands that they wouldn’t really like the consequences of. The whole conservative love for “austerity” is very much the tip of the iceberg in this regard.

If you hate the game, you have to hate on the game, and not on the players. That’s the only way positive change works. For example, the Chinese banking system still has very little independence from the CCP, in large part because all reforms were focused around the players and their teams, and banking system never got to be anything other than a football, as of yet. Effective change begins with understanding the system and the incentive structures that drive the participants, without any expectations that there won’t be new rats using new exploits, but with the expectations that infestations can be kept at a minimal level.

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straightwood 09.24.11 at 2:16 am

It is not a liberal or, especially so, a pragmatic/progressive ideal to value the moral outcomes of systems.

Rubbish. The moral component of a financial system is critical to its functioning. The foundation of contract law is honest compliance with the terms of an agreement. Misrepresentation and bad faith in the sale of financial instruments is a fundamental moral failure that has led to massive losses and growing instability in world markets. It is impossible to actively police every financial transaction in the world. The difference between efficient and dysfunctional markets is largely one of moral tone. The US once prided itself on having honest financial markets and effective regulation. This reputation is in jeopardy largely because of a moral failure, not some fluctuation in the business cycle or lapse in analytical acuity.

277

Watson Ladd 09.24.11 at 2:21 am

Straightwood, being wrong is not a crime. I might believe a contract is worth a different amount then you, and if I tell you the terms of the contract correctly I’ve not committed fraud if you buy it at a price I find in my advantage.

278

shah8 09.24.11 at 2:23 am

Do you even listen to yourself?

Next thing I know, you’ll be telling me that fat people deserve to be fat because “they can’t follow a diet.”

279

shah8 09.24.11 at 2:24 am

directed at *straightwood*, ‘scuse me…

280

straightwood 09.24.11 at 3:13 am

Straightwood, being wrong is not a crime. I might believe a contract is worth a different amount then you, and if I tell you the terms of the contract correctly I’ve not committed fraud if you buy it at a price I find in my advantage.

If I tell you that the mortgages in a securitized bundle meet certain documentation requirements and I KNOW they do not, in fact, meet those requirements, that is not only misrepresentation, it is fraud. Just such actions are currently the basis of several lawsuits in which institutional investors are seeking damages from those who sold them toxic mortgage-backed securities. One does not accidentally accumulate a bunch of “liar loans” and sell them as AAA securities.

The literature of investigations, both governmental and journalistic, of the mortgage market fiasco is full of indefensible acts of peddling garbage as high-grade investments. Daniel would have us believes that he inhabits some kind of alternate financial industry universe in which misrepresentation, the corruption of rating agencies, the undermining of regulators, and the over-leveraging of risk were not widespread and widely known practices.

281

John B. 09.24.11 at 3:18 am

Once upon a time, I was walking through a hotel with a Morgan Stanley veep, and I decided that I wanted to purchase a can of soda from the hotel gift shop. We went in, I grabbed a can, and when I went to the register, there was no one there. I rang the bell, and after a few seconds, the veep said, “Come on, just take it and go.”

I demurred, and he said, “Look, they deserve it. It’s their fault for not having someone here.” When I once again demurred, he literally threw his hands up in the air and walked out.

I rang the bell again, and after a couple more minutes, an ancient lady tottered out with a cane, took my two dollars, and I drank my soda, firm in my moral rectitude.

Another MS exec, during a chit-chatty conversation in which the topic of my household problem with mice, described to me in great detail the manner in which he dealt with such vermin: he scaled them in plastic baggies filled with water, watched until they stopped struggling, and then put the baggies into the freezer.

So, in my limited experience, what I have seen is not that all bankers are evil: merely that the ones with serious moral and psychological pathologies somehow seemed to be the ones who received the most reward. Almost as if the incentives that were in place encouraged actions that stretched moral and ethical boundaries to achieve greater short-term financial gain.

282

thor 09.24.11 at 3:40 am

What about the policy x politics debate? Even if we cannot ascribe blame at particular banksters (which I think we can), this kind of diffuse agency argument is a political non-starter, as most speeches on the subject by Obama prove.

Pounding on the excesses of the financial industry and showing its faces: Madoff, the crazed traders, Goldman Sachs conscious selling of bad stock in incredible bad faith is just good politics, and the fact that democrats have been faring so badly is their unwilingness to create such a narrative and ignite a serious movement that fights for the redistribution Daniel claims to want.

If Obama had built a (valid) narrative: the financial sector has become too big, too dangerous for our economic and political sistems and we must fight to bring it to a healthy size and away from criminal activity. This should be done by means of taxation, regulation, smaller bonuses, etc. Political ratings and the state of the economy would look much better now. But the window has closed, and with it comes the inevitable next crisis fueled by the same distorted incentives.

283

geo 09.24.11 at 4:27 am

straightwood@277: Daniel would have us believe that … misrepresentation, the corruption of rating agencies, the undermining of regulators, and the over-leveraging of risk were not widespread and widely known practices

Daniel, is this true?

284

nick s 09.24.11 at 5:16 am

Expand it slightly to ‘wrongdoing’, and I think we have plenty of meat to make the case on.

Expand it to “fuckups”, and we’re in exactly the right domain — and I think one issue here is evaluating the nature of the fuckup and the appropriate response.

Take, for instance, the England rugby team, an analogy that may be apt, given that English rugby union is a game for stockbrokers. Should they fuck up against Romania, there’s a taxonomy of potential fuckups: collective fuckups that can be blamed on the management’s fucked-up gameplan; collective fuckups that can be blamed on the team’s failed execution of the management’s otherwise fine gameplan; individual fuckups that come from being just not good enough, and should lead to being dropped; individual fuckups that are one-offs, there but for the grace of JPR Williams, and so on.

285

Robert Waldmann 09.24.11 at 8:58 am

Excellent in parts. Well written as always. But with one incorrect and irrelevant aside.

Points (not in order)
1) On average bankers aren’t as bad as murders (I agree)
2) Not all bankers share any of the blame (I agree)
3) Many borrowers lost their heads as well as their houses (agreed).
4) You can bail out banks with deficit spending (I agree except for the detail that, in the USA, bailing out banks reduced the Federal debt).
5) No true Scotsman admits that there are Scottish bankers (I’m not an expert).
6) Even if property is not theft it should be evenly distributed (I passionately agree).
7) making good policy proposals depend on dubious claims of fact is unwise (I very passionately agree).
8) Bankers do not bear a very large share of the blame for the recession (huhhh wahhhhh ?!?! how can anyone think that. Also what does that have to do with the rest of the post).

Brad DeLong makes a much better argument than the one that came to my mind (see below). His point is that no one made bankers keep mortgage based garbage on their books. Faith in the financial system collapsed when bankers and others discovered that some bankers had done so counter to all sound principles of banking such as originate and distribute, find a greater fool, first you pillage then you burn.

Sure other bankers did all the right things (and neither pillaged nor burned). But if you don’t know who blew over 100% of their equity betting on a bubble, it doesn’t do you any good to know that some bankers didn’t.

This was far far away (Lehman, Bear Sterns) or long long ago (AIGFP which isn’t even a bank) but it happened and many people are paying the price.

My weaker point is that, in the unfortunate paragraph about what happened which mars your nice post on people being mean to you and sound egalitarian political strategy, you assume that house prices are exogenous. A housing bubble just happened for some reason.

Look over the Atlantic again. There was no similar bubble during the 20th century. People will chase trends and inflate bubbles and all that, but something changed sometime around Y2K. I think that banking and finance generally changed. Option ARMS and a housing bubble acting together did not cause Countrywide to abandon all lending standards. They did that because investment banks were willing to buy and package all the garbage mortgages they initiated. OK the blame is shared by rechless homebuyers, non-bank mortgage companies, ratings agencies, AIGFP and some smart hedge fund managers who made money with legal but socially costly tricks (Magnetar). But there have always been reckless homebuyers and they never managed to bring down the US economy. Those of us who aren’t bankers refer to the rest of the lot as “bankers”

Note “the lot” not “you lot” IIRC you were one of the first to warn of the danger back when you worked at the bank of England before you went over to the dark side private sector, where I’m sure you did just as good a job but couldn’t publish your insights.

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dsquared 09.24.11 at 11:15 am

280: depends on your criteria for “widely known”. Some people, including me, suspected it. But we couldn’t prove it, and contra Michael Lewis, the people on the other side of the trade were not idiots and their arguments were not intellectually repulsive (up to 2005, that is; anyone who couldn’t see there was a problem from 2006 onwards was being an idiot, but the damage had been done by then). There is a massive difference between “what you believe to be the case” and “what you are so sure is the case that you are prepared to stake all your money and credibility on it” and it’s a very important one to be clear about if you are trading securities. In Keynesian terms, the evidence for widespread corruption in mortgage securities had fairly high probability but low weight.

And it’s worth reiterating the timeline here. Everyone bangs on about the Paulson/Abacus transaction but you should remember that a) it was carried out way into 2007, as a last gasp attempt to get otherwise unsaleable securities off the balance sheet and b) it was a wholly synthetic transaction, based on derivavtives contracts and did not result in a single extra subprime loan being made. Awful though it was, the contribution of that transaction to the crisis was 99% of sod-all.

287

john b 09.24.11 at 12:10 pm

One does not accidentally accumulate a bunch of “liar loans” and sell them as AAA securities.

And this didn’t happen. If you think that’s what happened, it’s no wonder you think there was outrageous fraud – go and read up on structured products and come back. The point is, everyone in the business believed it’d be impossibly unlikely for home loans in aggregate – even NINJA ones – to reach a default rate higher than low-double-figures.

So the tranches of home loans which would be good *as long as default rates on home loans didn’t do something that everyone believed was impossible* were sold as AAA, rated by people who knew that that the loans would be good as long *as default rates on home loans didn’t do something that everyone believed was impossible*. And then they did.

288

casino implosion 09.24.11 at 12:10 pm

Economics IS a morality play, dressed up with a bunch of equations and dubious assumptions. The moral is that everyone would what they deserve in the end, if it weren’t for those meddling governments….

289

Barry 09.24.11 at 1:04 pm

Wrong – IIRC, a large chunk of these securities were in jeapardy if home prices didn’t keep rising at historically unprecedented rates. The mortgage companies were – as anybody knows who was in the industry – originating garbage loans (payments which couldn’t be sustained, on overpriced houses) at historically unprecedented rates.

And please note that the companies bundling these into securities were selling them as fast as possible. They certainly didn’t value them highly.

290

Watson Ladd 09.24.11 at 1:07 pm

Okay, so there was fraud. The question is how much and how significant. Some seem to be arguing that honesty would have stopped the financial crisis, but if you look in the financial crisis inquiry report, the first minority appendix, you will see an estimate of the scale of fraud in dollar terms and the conclusion that it didn’t matter much. What mattered far more was people being wrong, and a few lucky people being right.

291

vladimir 09.24.11 at 1:44 pm

“…if you look in the financial crisis inquiry report, the first minority appendix, you will see an estimate of the scale of fraud in dollar terms and the conclusion that it didn’t matter much. What mattered far more was people being wrong, and a few lucky people being right”

Well, they could hardly tell the world that significant parts of the US financial sector were as bent as a seven dollar bill, could they

I sometimes wonder what Paulson (Hank) felt after his visit to China, having assured the Chinese that US risk assessment models were the best in the world and that they could invest without worry

292

Watson Ladd 09.24.11 at 1:58 pm

So now we need to have a coverup to make the proffered explanation work. Fraud would be a wonderful opportunity for political grandstanding, which committees love to do. Instead the best they could do was grill a very smart hedge fund manager about why he felt justified in putting his money where is mouth was. I’m not buying it: the incentives go the other way.

293

Tom 09.24.11 at 2:10 pm

I can live with people being wrong. What’s harder to stomach is the lack of remorse, the lack of any real willingness to behave differently and most galling of all the continued insistence from bankers that they’re not like you and me and that their special brand of skills MUST be recompense at ten times the going rate.

294

William Timberman 09.24.11 at 2:22 pm

Anecdotal evidence (U.S. version):

In 1977, my wife and I went to a local savings and loan looking for a home loan. We had the 20% down. We had enough income such that the total monthly cost, including the insurance and tax escrow payments, worked out to slightly less than 33% of our net monthly income. We’d both worked five years for the same employer — a large public university. We also had my wife’s parents pledged as co-signers.

The loan officer looked at my longish hair, looked down at the paperwork, and said, I don’t know, son, you don’t have much of a credit history here. I’m not sure I can see my way clear to loan you this much. Then he looked at my father-in-law’s crewcut, looked down at the paperwork again. You were in the Marines, sir? he asked. He followed the question with some masonic-sounding mumbo jumbo ending, as I remember in semper fi, and we had the loan, which stayed with the originator for the entire six years we owned the house. (The S&L in question did go bust within a year after we sold the place, though — something about the Keating Five, as I remember.)

Flash forward to late 2003. I’d just retired, and was buying another house. I went to a mortgage broker this time, again with 20% down, and more than the recommended monthly income — a solid-gold, defined-benefit pension payout — although I no longer had a wife. The mortgage broker ran a credit rating search and laughed. This is the highest rating I’ve ever encountered, but what’s this — a GAS credit card? — I haven’t seen anyone with one of those in years. He then looked down at the paperwork, and said, Listen, with that rating, I think we can lend you — here he quoted a figure roughly 75% larger than I was asking for.

I can’t make the payments on that much, I said, and I don’t want a variable rate.

Well, okay, he said, but it’s there if you want it.

Within a month after escrow closed, the loan, which had originated in some bank on the other side of the country, was sold to a national insurance company. Since then I’ve lost track of who’s getting the money, but presumably somebody is.

Did I know what was going on? Well, no, but considering that the equity recovered from the sale of that first house was more than the price we’d agreed to pay for it — by a considerable amount — and considering that I have less than zero equity in the house I’m living in now, despite my 20% down payment, I have given those facts, and the two anecdotes recounted above some thought. My conclusions do not at all incline me toward charitable thoughts about representatives of the financial industry….

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Sebastian H 09.24.11 at 2:50 pm

“Some seem to be arguing that honesty would have stopped the financial crisis, but if you look in the financial crisis inquiry report, the first minority appendix, you will see an estimate of the scale of fraud in dollar terms and the conclusion that it didn’t matter much. What mattered far more was people being wrong, and a few lucky people being right.”

Pairs well with “In general though, it’s probably a false hope that anyone will be able to regulate the financial cycle out of existence…” as an (unintentional I hope) dodge that the defenders in this thread seem to repeatedly make.

It offers escape through a false dilemma. I don’t have to believe that the crisis would not have existed at all, to believe that the bankers made it MUCH MUCH WORSE.

I don’t have to believe that the fraud itself was on such a massive scale as to bring the whole system down, to believe that the lack of due diligence on an array of long term financial decisions and ‘bets’ made it so that when the bubble started to burst and the fraud which did exist was revealed, the inability to trust what was in the trades, bets, and long term decisions which did not have adequate due diligence behind them threatened to bring the whole system down. And in that, the bankers made it MUCH MUCH WORSE.

I don’t have to believe that we can exorcise the ghost of the business cycle in order to believe that the reckless incentives, passing off of due diligence, and all around awful judgment of the banking and investment sectors made things MUCH MUCH WORSE than they had to be.

It is perfectly appropriate to note that there may have been a relatively serious business cycle downturn that the financial crew turned into the worst economic disaster in more than 60 years. I don’t have to blamethe bankers for the downturn to blame them for increasing its severity.

296

dilbert dogbert 09.24.11 at 3:03 pm

Just came from Grasping… and delong says it is too that the banksters or is that unibanksters did it in the board room with subprime trash.

297

Roger 09.24.11 at 3:04 pm

Contra the comment on 261 that but “everything I have read by Daniel just seems like wellinformed and smart Marxist analysis (and none the worse for that)” – it may or may not be smart, which definitely seems to be in the eye of the beholder, but it certainly doesn’t sound like a Marxist analysis of a financial crisis, which would of course emphasize the class nature of the banker’s privilege. For a smart, Marxist analysis of bank crises, I would go to Marx. Who sounds very much like an angry ranter in the Guardian. From his letter to Engels in 1857, when a financial crisis was raging:

“I’ve had a gratifying experience with the Tribune. On 6 November I wrote an exposé for them of the 1844 Bank Act, in which I said that the next few days would see the farce of suspension, but that not too much should be made of this monetary panic, the real affaire being the impending industrial crash. The Tribune published this as a leader 3 days later. The New-York Times (which has entered into a feudal relationship with the London Times) replied to the Tribune to the effect that, firstly, the Bank Act would not be suspended, extolled the Act after the manner of the money-article writers of Printing House Square, and declared the talk of an ‘industrial crash’ in England to be ‘simply absurd’. This was on the 24th. The following day the N.Y.T. received a telegram from the Atlantic with the news that the Bank Act had been suspended, and likewise news of ‘industrial distress’. It’s nice, by the by, to see Loyd-Overstone coming out with the true reason for his fanatical advocacy of the 1844 legislation — because it permitted the ‘hard calculators’ to squeeze 20-30% out of the commercial world.

Nice, too, that the capitalists, who so vociferously opposed the ‘droit au travail’ [right to work], are now everywhere demanding ‘public support’ from their governments and hence advocating the ‘droit au profit’ at public expense in Hamburg, Berlin, Stockholm, Copenhagen and even England (in the form of suspension of the Acts). Also, that the philistines of Hamburg should have refused to hand out any more alms to the capitalists.”

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John B. 09.24.11 at 3:05 pm

The point is, everyone in the business believed it’d be impossibly unlikely for home loans in aggregate – even NINJA ones – to reach a default rate higher than low-double-figures.

The point is, everybody who was “in the business” was actively working to avoid actually contemplating the possibility of large numbers of default. If they truly believed it was “impossible”, then it was only because they were sticking their fingers in their ears.

Risk management took a back seat to profits. Reward went to those who made a lot of money however they could.

From the GAO report on risk management regulatory failures:

In another example, other regulators found weaknesses related to an institution’s oversight of risk management before the crisis. One regulator issued a letter to the institution’s senior management in 2005 requiring that the institution respond, within a specified time period, to weaknesses uncovered in an examination. The weaknesses included the following:

The lack of an enterprisewide framework for overseeing risk, as specified in the COSO framework. The institution assessed risks (such as market or credit risks) on an individual operating unit basis, and was not able to effectively assess risks institutionwide. A lack of common definitions of risk types and of corporate policy for approving new products, which could ensure that management had reviewed and understood any potential risks.An institutional tendency to give earnings and profitability growth precedence over risk management.

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Kirby 09.24.11 at 3:23 pm

Well you really can’t be all that surprised after all they are the guardian after all and have a reputation of protecting the masses and letting us all know how the world really is which is why I actually like them a lot. They are very vigilant especially with the finanancial/banking situation and I know that for sure. Might a swell have a group discussion or a gemini c group pallet on that. I’ve seen other articles by them that would suggest we are in a unique period and that is really credible considering the staff they have

300

actio 09.24.11 at 3:25 pm

I twice brought up facts about how the financial sector mesh with tax havens. Daniels has surely been busy, but it would be interesting to hear a reply on that specific point.

To structure things a bit more, I ask if Daniel wish to question any of these points:
(1) the City of London financial entity is a tax haven
(2) tax havens are key causal and magnifying factors for the current financial crisis(es)
(3) tax havens are key enablers of anti-egalitarian politics
(4) tax havens are key vehicles for hiding ill gotten billions from the financial crisis

301

Gareth Rees 09.24.11 at 3:31 pm

Some people, including me, suspected it. But we couldn’t prove it, and contra Michael Lewis, the people on the other side of the trade were not idiots and their arguments were not intellectually repulsive

What you’re saying here is, “we got played.”

302

Henri Vieuxtemps 09.24.11 at 3:32 pm

Banksters: a report on the banality of evil.

303

straightwood 09.24.11 at 3:55 pm

Anyone who has worked in a financial institution understands that moralistic grandstanding loses badly against profitable schemes, unless there is a serious threat of legal sanction involved. I am sure that Daniel knows that if he had raised objections to shoddy, but profitable, practices in his own institution, he would have been told to shut up and sit down, or worse. Thus his bland assurances that he is really a nice guy unjustly subject to collective punishment of his disgraced “professional” community are fatuous. He took his (big) paycheck, and he kept his mouth shut.

The documented antics of Wall Street and City of London financial assholes are the stuff of urban legend: they include literal pissing contests; large-scale consumption of cocaine and patronage of prostitutes; and wretched excesses of all kinds. These sporting activities are matters of competitive pride to their participants, but Daniel expects us to exhibit charitable feelings toward his greed-crazed colleagues – after they wrecked many of their own institutions and crashed the economy.

From today’s New York Times:

The problems at UBS aren’t inadequate risk controls, which Mr. Adoboli brazenly circumvented, or a lack of regulations, which didn’t stop other UBS executives from skirting the law. The problem the board faces is whether the UBS culture, to the extent it had one, was one of personal greed. UBS should ruthlessly and visibly weed out not just executives with dubious ethical and legal standards, but anyone who puts their personal interests ahead of clients — which, when you think about it, should be the litmus test for anyone who claims to be a professional.

Link

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central texas 09.24.11 at 4:12 pm

Hmmm. Did one of Salon’s cute contrarians jump the corral? I look forward to to future posts; perhaps a “Nadine Dorries, Misunderstood Champion of Liberty and Inquiry” or “Stephen Yaxley-Lennon, Martyr to Political Correctness”.

305

hopkin 09.24.11 at 4:46 pm

dsquared: we’re not blaming you personally, so there’s no reason for you to suspend your usual standards of analysis and truthiness.

john B: this is a great line: ‘The point is, everyone in the business believed it’d be impossibly unlikely for home loans in aggregate – even NINJA ones – to reach a default rate higher than low-double-figures.’ So, my soccer team has never lost by more than three goals, so if I play without a goalkeeper we won’t lose by more than three goals.

Come to think of it, that must be Arsene Wenger’s reasoning.

306

William Timberman 09.24.11 at 5:12 pm

hopkin @ 299

Wenger is looking more like Job at the moment than Dr. Pangloss. The irony for me is that it’s Sir Alex who now has the personnel that Wenger needs to play the game the way he wants to play it.

Ferguson’s genius, it seems to me, is that he’s figured out how to win no matter who he’s got, or what style he has to use to deploy them to best advantage. Wenger hasn’t. As a Gunner’s fan, I hate to admit it, but there it is.

307

Tom West 09.24.11 at 5:54 pm

Daniel, you’re on a hopeless quest.

Personally, I believe that (almost) *all* groups from pensioners to bankers (to me) are a bunch of greed-heads who will attempt to manipulate the system in order to so, all while feeling they’re bringing social value. I’m certain the mafiaso also believe they’re playing some vital social role. It’s human nature, and personally, I find it a waste of energy to rage at humans being human.

As well, I expect every group to try an influence government to their own benefit (while believing it’s for society’s benefit). Again, humans being human.

*However*, in this eternal struggle, the bankers won, and more importantly, they won big – really big. So of course people are going to resent the hell out of the winners. I’m afraid that that resentment is just the price that bankers (including the peripheral players, rage is not a laser beam) will have to pay for having been at the top.

In contrast, if in the next decade, if we have an enormous agricultural crisis because farmers (and agribusinesses) have responded to incentives that lead to practices that are inherently risky (mono-crop agriculture, GMO, etc.), we’ll be angry. “They should have seen it coming”, etc. We’ll also bail the farmers out, because like a financial system, we need them anyway, so they’ll keep their farms and “get away with it”.

But because the farmers weren’t taking home hugely massive paychecks (i.e. they won, but didn’t win super-big), while the resentment would be considerable (despite having given us cheap food for years as we wanted), it wouldn’t be anything like that directed at the bankers.

In other words – tough luck.

As for the hopeless of regulation, I disagree. Of course we can’t legislate financial cycles out of existence. But at the cost of making ourselves poorer when times are good, we can partially reduce the costs when things eventually go unexpectedly bad. And that is the job of government. And since experts are pretty much inevitably self-interested, it’s government’s job to determine when to listen to the experts and when not to.

It’s also the government’s job when to say no to things that benefit people *right now* because the possible price later might be too high.

However, I live in a democracy, which means the government is ultimately me. I personally accepted the benefits of easy mortgages that allowed family members to buy their own homes, despite the risks, and if the risks were good for my family, they were bad for a lot of others. I personally rejoiced in a boom that decreased unemployment spectacularly and boosted government revenue. I knew the risks were there, but I accepted it for the benefits it provided.

Thus, I have no moral choice but to accept my share of the responsibility for the behaviour of the government in this issue.

My apologies.

308

Bloix 09.24.11 at 6:06 pm

Atrios today: More free money for banksters! http://www.eschatonblog.com/
Please tell me why we are not permitted to hate billionaires who buy governments in order to use them to funnel tax dollars to themselves while telling the rest of us that we must sacrifice our old age and our children to the gods of austerity.

309

Peter K. 09.24.11 at 6:33 pm

The best troll line came from Goldman Sachs’ Blankfein who said bankers are doing “God’s work” reportedly with an impish grin.

I get what d^2 is saying but it has been tiresome to hear and read of bankers complaining about an anti-banker backlash when they did create the crisis after all. Of course they were enabled by academic economists and everyone who brought about the deregulatory sea-change of the last few decades, from politicians to captured regulators (i.e. ratings agencies) to the supplicant media, etc. etc. etc.

What else do I find annoying? Self-righteous lefties overly-sensitive to any perceived hippy-punching. Get over yourselves.

310

PSC 09.24.11 at 6:42 pm

There seem to be several distinct issues here:

First, I think we all agree that bankers are universally nicer than serial killers. We all agree that individual bankers as individuals did not set out to plunge the world into a reasonably nasty recession.

But second, the profession – and by implication the individuals inside it – manifestly does not have the wherewithal to successfully manage 100 billion-dollar balance sheets comprising the life savings of ordinary folk on the liability side and the system of credit which powers the entire economy on the asset side without adult supervision. That’s coupled with too-big-to-fail – essentially free liability insurance which amounts to a provisional claim on an uncapped portion of my and every other taxpayer’s future income.

So to my mind, in a moral sense the profession owes the public a lot more than the public owes the profession. What does the profession owe the public? Humility. Contrition. Public announcements about how ring fencing does not go far enough, that the proposed Basel III capital rules are inadequate. Much better disclosure of the risks the public are underwriting. Changing the of the term “retail customer” to “taxpayer who may be forcibly coerced to underwrite our failure”. Less whininess about compliance and audit requirements – much less whininess. More responsibility from senior management, less buck-passing. The end of the bancassurance model for all but 100% vanilla businesses. No endless attempts to do an end-run around ring fencing by exploiting legal loopholes. Acceptance of sub-10% RoE in the medium/long term given a high capital universe. The occasional “there but for the grace of God” comment when asked about the possibility of failure.

Third, bonuses and compensation. If the profession needs strong adult supervision (which it manifestly does) and only exists by virtue of an implicit or explicit taxpayer guarantee (which it manifestly does) and is essentially and often literally just an arm of government, why is the profession not paid public sector wages/bonuses for performing at a sub-public sector level of competence?

Forgive me some hyperbole: it’s not clear to me that if we’d grabbed a bunch of teenagers flipping burgers and put them in charge of these banks that they would have performed worse. The charge against the profession is not one of being serial killers. Nor of being evil. It is of massive incompetence in the management of other people’s money.

311

Curmudgeon 09.24.11 at 6:45 pm

Shorter Daniel Davies:

“Suggesting that bankers pay any price for blowing up the world is class warfare.”

Cry me a river.

312

Cranky Observer 09.24.11 at 6:45 pm

> Daniel @3:56 pm
>> You seem to be saying that because a lot of people in different spheres
>> had some agency, then we can’t blame anyone at all

> Happy to confirm that this is my view; consistently since my first post on
> the subject on CT, my candidate for the blame has been “the general
> tendency of complex systems to have complex and unpredictable dynamics”.
> Sorry it’s such an unsatisfying villain, but if you bought a ticket on the
> expectation of seeing a morality play, I have to say I didn’t advertise that
> there would be one.

So if every major system in modern life is so fractally random, unpredictable, and ultimately unstable what exactly justifies paying some of the lucky few people who work their way to the top of such systems $50 million/year for years at a time [1] whilst those who haul their trash get paid $15,000?

Cranky

[1] or for that matter, the midlevel guys who make $250k + bonus.

313

dsquared 09.24.11 at 6:57 pm

what exactly justifies

Nothing justifies it, it’s not a morality play. If you don’t like it, tax it.

314

ckc (not kc) 09.24.11 at 7:16 pm

Nothing justifies it, it’s not a morality play. If you don’t like it, tax it.

Taxation, without “justification” or “morality”, is a pretty empty concept.

315

geo 09.24.11 at 7:16 pm

it’s not a morality play

What isn’t, exactly? Politics? Society? The economy? Can these spheres really be demarcated such that moral judgments are appropriate in the former but not the latter? Why and how?

If you don’t like it, tax it

Just because we don’t like it? Nothing more to be said? Are moral judgments irrelevant to the distribution of the social product, which is (among other things) what taxes are for?

I think we may need another 300 comments to unpack that last quip of yours, Daniel.

316

Nick L 09.24.11 at 7:24 pm

Actually, thinking about this a bit more, there is something pretty cowardly and weaselling about using only one half of a Marxian structural determinist argument that the causes of the crisis were systemic so we shouldn’t blame anyone. I mentioned Hobson above, but I think the point can be made a bit more strongly. Marx might have believed that the maladies of capitalism were determined by its very nature and so turning the critique of capitalism into a morality play is a total dead end. Systemic forces are at work, not the wicked machinations of certain groups. All hunky dory so far, but Marx’s approach is also pretty clear that certain groups, classes if you will, are the bearers of those forces and so play either a progressive or regressive role in human affairs. So just as egalitarians shouldn’t get bogged down in assigning personal responsibility for large-scale systemic outcomes, nor should they start blubbering (or lamely trying to deflect criticism) when people start to call for the expropriation of the expropriators.

If you don’t like class warfare get out of the kitchen.

317

ScentOfViolets 09.24.11 at 7:24 pm

The point is, everyone in the business believed it’d be impossibly unlikely for home loans in aggregate – even NINJA ones – to reach a default rate higher than low-double-figures.

So the tranches of home loans which would be good as long as default rates on home loans didn’t do something that everyone believed was impossible were sold as AAA, rated by people who knew that that the loans would be good as long as default rates on home loans didn’t do something that everyone believed was impossible. And then they did.

“We can’t be wrong because we used MATH!” I can’t let this one pass. No, what happened was everyone bet the farm that a certain model of these financial transactions was valid. A very, very stupid model, untested, and with extremely dubious starting assumptions. You know, most people in the sciences just don’t assume as a matter of course that certain events must be uncorrelated. They actually, you know, kind of check this out first ;-)

But it was the sort of Mathy thing (a subtype of Truthy) that allowed them to make a great deal of money. And of course, to those who complained that they still didn’t see how this new stuff actually lowered risks, well, they were told they just didn’t get it, and that if they were smart enough they’d see it was obvious.

318

ScentOfViolets 09.24.11 at 7:35 pm

what exactly justifies

Nothing justifies it, it’s not a morality play. If you don’t like it, tax it.

Now that’s just contemptible. When I ask someone what justifies their treating a given set as closed under a certain set of operations, no one thinks that I’m indulging in some sort of morality play.

It’s quite obvious that Cranky is asking why these guys should be paid so much, given that they claim it’s because of their precious ‘leet skills that only a very very special few can master. Since you’ve just said those skills aren’t worth bupkas when it comes to navigating these unimaginably complex, ever changing systems, that they might as well randomly guess, well, that kind of blows that particular “justification” out of the water now, doesn’t it?

Or are you going to pretend to misunderstand what people have plainly written yet again?

Oh, and when are you going to actually, you know, do some work to convince people that you’re right? You know, the usual case in these sorts of rational investigations?

319

dsquared 09.24.11 at 7:40 pm

#309: the second half of your Marxist analysis is exactly the bit in Marx that isn’t right. Those references to GA Cohen weren’t just bluffing, yknow.

(and this is to #308 too) successful egalitarian spcieties like Denmark really don’t operate by messing around in what jobs everyone does or how companies pay thei employees. They do it by having high and progressive tax systems and generous public provision of benefits and services. In order to support such a system ypu have to have cultural buy in from all the levels of society, which is why us-and-them politics, of either the “wealth creators” or banker-rage kind, are toxic. This isn’t even inconsistent with a little bit of judicious class war rhetoric – Elizabeth Warren’s “the deal is that you have to pay some forward for the next kid” speech seems pitch perfect to me.

320

ckc (not kc) 09.24.11 at 7:40 pm

how this new stuff actually lowered risks

…TANSTAAFL …obviously it lowered somebody’s risk

321

ScentOfViolets 09.24.11 at 7:48 pm

Oh, and going to maybe the reason people are angry is because after these financial actors screwed up in such a way as to accidentally enrich themselves while impoverishing everyone else, let’s see what’s actually going on when it comes to regulation that is supposed to prevent this kind of reckless trading:

Banks could be allowed to continue making risky bets with their own capital, according to a draft version of the so-called Volcker rule that dilutes the provision’s original ban on “proprietary trading.”
At issue is how regulators and banks define “hedging,” or trades designed to offset risk taken by a bank, usually on behalf of customers.

Basically, the banks successfully got the regulators to define “hedging” so broadly that virtually any proprietary trade could be seen as a hedge.

The Financial Times report on this says that commodity trading, spot currency trading, securities lending, repurchase agreements and some securitizations would be exempted from the ban on proprietary trading, along with exemptions for “liquidity management.” The sum total of these exemptions is that there’s no effective ban on prop trading at all in the rule.

You know, people do get a little put out when the same guys hiding behind the “who coulda known?” dodge to defend their previous actions are actively working to make sure they can continue to take those same actions after they supposedly know better.

But I’m just being unreasonably angry, I suppose. This time, I’m sure, they really have all the bugs worked out – and they have they have even better “math” to prove it. And if the system crashes again under the Mark II version? Well, I’m sure it will catch these worthies completely by surprise again.

322

Henri Vieuxtemps 09.24.11 at 8:00 pm

Denmark and Elizabeth Warren’s speech are not egalitarian, they are species of ‘welfare state’. In an egalitarian society individuals don’t own factories.

323

Lemuel Pitkin 09.24.11 at 8:07 pm

I think dsquared’s point is that we shouldn’t expect market incomes to bear any relation to what people deserve in the first place, so there’s no special problem with high incomes in the financial sector. The only way there is going to be any relationship between what people’s incomes are, and what they ought to be, is if it’s established by taxes and transfers.

It’s an argument one hears fairly often, but it’s got a strong air of unreality about it. A capitalism with an omnipotent tax system managed by a benevolent social planner, and where market incomes did not convey any sense of moral worth, would be radically different from any capitalism that exists here on Earth.

324

bianca steele 09.24.11 at 8:11 pm

Systemic forces are at work, not the wicked machinations of certain groups.

It has never been clear to me how or why “systemic forces” are supposed to be incompatible with the idea of individuals or groups acting according to any instrumental logic whatever, much less on any cognitive basis. Where does Marx talk about this?

The statistical view does not preclude individuals’ acting on the basis of beliefs.

325

Will 09.24.11 at 8:13 pm

“The demands of egalitarian justice are not based in some convoluted proof that the rich have in some way stolen from the poor.”

The vast literature on the Transformation Problem suggests otherwise…

326

hopkin 09.24.11 at 8:16 pm

I don’t think Denmark could sustain its progressive tax system (which is not as progressive as you might think, a lot of the legwork is done by sales taxes), and particularly, its high levels of wage compression through union bargaining, if it had a bloated financial sector on the British model. There is a reason casino-style banking was biggest in places like UK, US and Ireland. Sweden had a big crash in the 1990s, but it looks like they found some way to stay out of trouble this time.

dsquared is dead right that the Scandinavian model is not about the state dictating what people should produce, but he misses the key point that it only works when you have an entrenched system of wage coordination and skill formation, run through ‘encompassing labour market institutions’ as the jargon has it.

327

Nick L 09.24.11 at 8:45 pm

@ d^2: The bits of Marx that are invalid are the bits personally inconvenient to you, got it, thanks. Egalitarianism made easy: all the champagne, none of the socialism.

@326: Yup agreed, people miss this because they have a simplistic understanding of determinism. Most social phenomena can be understood in terms of structural conditions, but it doesn’t absolve actors of their responsibilities: WWI for example.

Going back to GA Cohen, as I argued before the ‘ethical socialism’ approach is deeply flawed as a political ideology for egalitarians because, without being supplemented by an actual critique of political economy, it recommends a policy of ‘tax the rich, but otherwise leave them alone to create wealth’. That doesn’t seem to have worked out so wonderfully. Changing the political economy which produced this mess requires taking on the organised interest groups that are defending the status quo, i.e. a significant part of the financial sector. If the injustice of that makes you cry to the heavens then you have a strange sense of priorities.

328

Nick L 09.24.11 at 8:49 pm

@328: Yes, d^2 is prevaricating between (a) the choice amongst alternative models of capitalism/role of the financial sector in the economy and (b) the sort of ‘should nurses be paid more than footballers’/labour theory of value arguments. The latter are pretty pointless (apart from when they direct attention to unproductive rents such as windfall profits and land value) but the latter has to be part of any egalitarian critique that actually wants to get somewhere.

329

Main Street Muse 09.24.11 at 8:53 pm

Bankers are to blame and for so many reasons!

You cannot be “the best and brightest” and deserve massive bonuses and then claim you had no idea your books were so unbalanced by bad debt, as bankers have done.

You cannot claim to be brilliant while working in an sector that exists because governments throughout the globe bailed out your businesses.

You cannot be too big to fail, get bailed out and then demand a bonus or else you’ll leave. (And shame on governments that bought this most lame of arguments!)

The financial sector’s job is to “manage risk” and yet they managed risk so poorly that they manufactured a global collapse of the economy. However, one must acknowledge that they are brilliant at survival and brilliant at persuading the person in control of the purse springs (which, 30 yrs after Reagan’s Revolution against government is, strangely enough, the government) to loosen those strings and show them the money….

330

Doctor Slack 09.24.11 at 9:43 pm

I’m amazed at how clueless dsquared seems to be about the role of outrage in driving egalitarian policy. Historically, there have been few things more effective than outrage at privileged classes (be it landed aristocrats, “fat cat” capitalists or what have you) for driving egalitarian politics. That the outrage isn’t always strictly-speaking 100% fair and careful and nuanced — and that it can often segue into uglier phenomena — has nothing at all to do with its political effectiveness; by the same token, the decline of egalitarian politics has less to do with outrage than with the development over several decades of an illusion that we had outgrown the need for outrage. So the recommendation that we steer clear of all this unseemly outrage if we want genuine egalitarianism looks unrealistic, and really little more interesting than concern-trolling.

Looking at the financial sector as a whole, it is a bit disconcerting to see how many of its members seem keen on experimenting with how far they can go in baiting public outrage before they start getting real violence in response. But I suppose to many of them it seems like the best defense is a good offense.

331

dsquared 09.24.11 at 10:11 pm

Actually the welfare state was built in the aftermath of the second world war and was founded on solidarity and a nation united. It was called the “post war consensus”. Similar stories are available across Europe. The only place I can think of where egalitarian institutions were built on populist anger was (very arguably) the USA, and it’s notable that they were both less comprehensive than the European models and much more vulnerable to reactionary backlash after Nixon.

332

Doctor Slack 09.24.11 at 10:29 pm

Actually the welfare state was built in the aftermath of the second world war and was founded on solidarity and a nation united.

The labour movement, which powered most iterations of the welfare state, passed through many periods and phases of often-violent struggle to reach the point of making such states possible. I don’t think Attlee’s government is an exception.

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Tom Bach 09.24.11 at 10:33 pm

Yes, dsquared, and the post war consensus had nothing to do with the interwar class conflict leading to populist outrages on the left and the right, right? The 1928 General Strike never happened and, certainly, it played no role in the development of the post war consensus. So maybe not “built on” populist outrage but rather built because of populist outrage. And, indeed, the post war consensus built because of populist outrage in, say, England wasn’t all vulnerable to reactionary backlash, leaving side Thatcher and New Labor.

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geo 09.24.11 at 10:42 pm

Actually the welfare state was built in the aftermath of the second world war and was founded on solidarity and a nation united.

This is a drastic, even desperate, oversimplification. Working-class solidarity, which threw out the wartime leader Churchill, was based in good part on three decades of intense class conflict, from the pointless butchery of World War I to the General Strike and through the Depression. In effect, the working so passionately and unanimously hated the traditional English ruling class (cf. our Wall Street) that they finally served notice that the nobs’ day was over.

Daniel, you seem to be underestimating the unifying potential of popular indignation against ruling-class villainy.

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Doctor Slack 09.24.11 at 10:45 pm

Daniel, you seem to be underestimating the unifying potential of popular indignation against ruling-class villainy.

To put it mildly.

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polyorchnid octopunch 09.25.11 at 12:44 am

This has been a very interesting discussion. The only thing that I’m going to bring up here is dd’s quote “if you don’t like it, tax it”. There’s a real problem for you and your colleagues is this: if it all goes pear shaped again in the next year or two (and it may very well do so), then people won’t be taxing it, they’ll be lynching it.

I don’t actually want to see that happen, because when you repeat October Revolutions, a lot of people get lynched who don’t really deserve it, and you are far more likely to have really really bad long term results than good ones. However, the way elites are acting (and esp. financial, legal, political, but also yes academic and cultural elites) it’s what they’re going to get. It’s why I called them suicidal upthread.

dd, the end game for your colleagues is that they will be swept up in the lynching, even if most of them don’t actually deserve it. If they don’t want that, you and the people like you in your industry need to start shopping out the people who do deserve it, so the lynching they get is one that happens in a court room than the one you’ll all get on your front lawns as their families watch, helpless, while their McMansion burns to provide illumination, no matter whether that particular person and family deserve it or not.

I’m not sure what the super-elites expect as their end game. Do they all expect to evac out to some island nation with their (perfectly legally acquired) reaper drones to keep the rabble from breaching their defences or something?

Or maybe they just all figure they’re going to move to China. After all, the way biz folks have been treated in China when they go there to buy stuff might make them think it’ll be great (a friend of mine who used to do purchasing for a major Canadian manufacturer has told me about those trips, and the comments from his boss about “the next time we go fuck some chinese bitches”), but I suspect that if they’re coming there because they’re fleeing the rubble it’s not going to quite work out the same way as it did when they were going there to buy stuff.

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Doctor Slack 09.25.11 at 12:46 am

I actually had a look through that Guardian thread, and found something far more interesting than Luyendijk’s plaintive pseudo-academic defensiveness: this article from Roar.

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MosesZD 09.25.11 at 1:13 am

Bad, stupid products[2] like Option ARMS or subprime buy-to-let teaser mortgages, were not invented by the industry out of sheer cackling evil; they were invented because they were the only way to get the people who did not have the means to pay for them into the houses, with the very nice side benefit of us getting big bonuses when we sold-off the crap mortgage-based securities to pension funds and little old ladies.

lolz. Fixed it for you dude.

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Lee A. Arnold 09.25.11 at 1:15 am

Geo #336: “Daniel, you seem to be underestimating the unifying potential of popular indignation against ruling-class villainy.”

I talk to a lot of people in the building trades, plumbers mostly, and I am hearing indignation like never before. These people are getting hammered, cutting bids 20-30%, yet still not getting the jobs from millionaires remodeling their McMansions by going with even cheaper bids. Some of it gets personal. To hear this sort of class discontent repeatedly in one of the toniest sections on the planet, where economic storms are usually weathered with a ho-hum and a yawn, there could be a political explosion coming.

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dsquared 09.25.11 at 1:21 am

There’s a real problem for you and your colleagues is this: if it all goes pear shaped again in the next year or two (and it may very well do so), then people won’t be taxing it, they’ll be lynching it.

I’ll bet you ten quid you’re wrong. I’ll even offer you odds, although I suppose if you’re right you may have a problem collecting.

#340: I really think that if your hopes lie in building contractors working on McMansions, you’re going to be disappointed.

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Jonathan Dursi 09.25.11 at 1:29 am

>> Daniel @185: since my first post on the subject on CT, my candidate for the blame has
>> been “the general tendency of complex systems to have complex and unpredictable >> dynamics”
>
> [geo @259]: Like the weather?

Like, I suspect, Geo, I’d have a lot more sympathy for this analogy if it had turned out that the weather had spent the last 30 years lobbying successfully to changes for the laws of thermodynamics and hydrodynamics to enrich itself while also significantly increasing the odds of city-destroying hurricanes occuring.

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Lemuel Pitkin 09.25.11 at 1:49 am

Daniel, if popular anger isn’t the least threatening to bankers, why would they ever pay taxes or be subject to regulation? For that matter, if it’s so unthreatening, why do you care about it?

If people saying mean things about bankers in the Guardian make you guys so unhappy, that’s got to make you less eager to do things that will make people mad at you in the future.

You are saying, I guess, that there’s nothing you could have done differently, since whenever interest rates fall by a few points that just inevitably leads to housing bubbles, financial crises and years of mass unemployment. Doesn’t seem like people are buying it.

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Lee A. Arnold 09.25.11 at 1:56 am

#341 “I really think that if your hopes lie in building contractors working on McMansions, you’re going to be disappointed.”

Because they’ll be first in line for the next economic upswing? Or because we’re all friends anyhow? But I have in mind, for the States at least, whether it PRESENTLY means that a campaign swing to hard economic populism would give Barry-O a good shot to re-election, like FDR ’36. Which would be categorized as a political explosion. He is so low in the polls that if he doesn’t ignite a 21st century version of the New Deal coalition, he’s got no chance. Of course it may be over already; and whichever Republican tells the funniest jokes will win. (In other news, Cain wins Florida straw poll.) Obama would have to divorce himself from the previous incarnation of being appeaser-to-Republicans, and it is not clear how he will get anyone to buy it, since actions speak louder than words, and right now even many Hollywood blacks are taking the luxury of being pretty goddamned PO’d with BO.

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Tom Bach 09.25.11 at 2:00 am

Lemuel:
I think the larger point here is that DD understands that popular anger is a danger to bankers and those that facilitated their fraud. What he wants is to convince everyone that the anger is unwarranted. So that effective reform is neutered.

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Lee A. Arnold 09.25.11 at 2:33 am

I thought DD explicitly said something like anger at bankers is not a good foundation for a critique of capitalism, nor therefore a good basis for progressive policymaking and taxation arguments, which can be conducted upon better foundations. And it surely is not. And then it got picked apart on absolutist objections to specific clauses in the argument, and I fell asleep and went to work. And now I am not going to have time to read the intervening comments, so I shall disappear.

Anyway it ought to be very clear by here, that anger at bankers is a possible basis for a political campaign, it stretches from left to right, it helped to ignite the Tea Party origination (for example), it is almost physically palpable, and it is not under any one’s control. And on the upside, I love it, short-term class warfare can be lots of fun.

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Jon H 09.25.11 at 2:42 am

Shorter Dsquared: “It’s a shame what happened, but those mortgage lending consumers shouldn’t have worn such short dresses.”

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Lemuel Pitkin 09.25.11 at 2:47 am

Tom Bach,

I don’t know how long you’ve been reading Crooked Timber, but DD is a very smart guy who is consistently if eccentrically on the left. That’s what makes this post so distressing.

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Jon H 09.25.11 at 2:51 am

“Normal, sensible people, acting for the most part rationally (but myopically) based on the incentives and the market in front of them, caused a bubble and a crash. If you are going to assume that it was caused by malefactors, or was in some way a pathology or abnormality of the system, you’re not going to develop the right analysis of capitalism. It has crashes and crises. That’s how the system works.”

If it weren’t for malpractice suits and likelihood of prosecution for manslaughter, the incentives for hospitals would lead to them rationally (but myopically) reusing dirty needles, not sterilizing instruments, and generally reverting to 19th century surgical practice with the fatality rate to match.

Totally understandable! It’s just incentives!

Unfortunately, the financial industry has managed to lobby governments to avoid anything like the kind of accountability that exists in medicine. And they sure as hell aren’t going to allow any serious regulation or redistributive taxation to be put in place.

Even the new ringfencing is a few years from coming into effect. Plenty of time for the City to threaten to flounce, and get the whole thing binned.

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Lemuel Pitkin 09.25.11 at 2:53 am

I thought DD explicitly said something like anger at bankers is not a good foundation for a critique of capitalism, nor therefore a good basis for progressive policymaking and taxation arguments, which can be conducted upon better foundations.

If he’d just said that it would be fine, depending on what exactly you mean by foundations. But he went much further. He said that anger at bankers shouldn’t even be on the program at all, because there is no useful sense in which the behavior of the financial sector contributed to the crisis. And anger is politically useless, because the rest of society is so helpless relative to finance that there is no point in threatening them in order to convince them to accept reforms. Rather, we can hope they’ll accept regulation, pay taxes, etc. out of a sense of noblesse oblige, but only if we treat them respectfully.

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between4walls 09.25.11 at 3:07 am

I think DD is muddling three different questions together 1) whether anger at bankers is warranted, 2) whether it’s good grounds on which to base a program of redistribution, and 3) whether it’s politically useful. And they shouldn’t be mixed up, because it’s possible to be angry with the financial industry without basing your whole case for redistribution on those grounds. It’s not like the Guardian commentators were champions of unregulated markets until they woke up one day after the crash thinking “Those bankers are real bastards, aren’t they?”
“You have, he needs” is morally impeccable but isn’t going to convince a lot of voters.

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Tom Bach 09.25.11 at 3:23 am

Lemuel Pitkin:
I’ve been reading CT for some time now. We differ on how smart and how left ‘dd is; however, the argument is idiotic and distressing because it is idiotic and distressing regardless of who made it. I would suggest that making this kind of idiotic and distressing argument is evidence that its maker isn’t smart and, yet even more so, not particularly left. Added to which the nonsense about the origins of the welfare state and the efficacy of populist anger as a means of effecting political change offers further evidence of not knowing what he is talking about.

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Rich Puchalsky 09.25.11 at 3:54 am

“I would suggest that making this kind of idiotic and distressing argument is evidence that its maker isn’t smart and, yet even more so, not particularly left. “

Oh no, let me come to DD’s defense in this , and for that matter to the defense of many of the other posters on CT. What these kinds of posts illustrate is not that the writer isn’t smart, or isn’t on the “left” for the usual definition of that term. What they illustrate is that the crudest kind of prediction of opinion from occupational interest is distressingly true for these people. DD is free to be “eccentrically on the left” as long as nothing about bankers or the interest of bankers is involved. Several of the humanities professors are quite free to be on the left as long as this involves going to stirring demonstrations and the like, but not on the left when it involves, say, shunning a prominent and thoroughly nasty right-winger instead of treating them as a serious interlocutor. That would interfere with progression up the pundit ladder, and is therefore against everything that is right and good about public discourse, the pursuit of truth, etc.

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tomslee 09.25.11 at 4:09 am

If there’s one thing that will expose the smug armchair socialism of CT posters for what it is, it’s a fearless blog comment.

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Patrick 09.25.11 at 4:11 am

I often think that we don’t sufficiently punish managerial incompetence. An executive who runs a company into the ground and gets its employees laid off probably causes much more harm; death, sickness, and human misery than one robber or murderer. The employees and their relatives end up dying due to preventable diseases, malnutrition, and exposure. Their children end up poorer and worse educated. They become more likely to commit crimes. Sure the statistical incidence of this sort of thing isn’t that high, but if you get 10k people laid off, you probably cause a couple deaths on average. Personally, I think that we should treat the person that caused the lay off harshly. If it was due to fraud or negligence, they should be charged with manslaughter. The reason we don’t is #1 because we can’t prove that they directly caused the deaths, even if we can be certain that they caused them in an actuarial sense. #2 Because of some Kantian notion of justice that I find completely unpersuasive.

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Doctor Slack 09.25.11 at 4:39 am

DD is free to be “eccentrically on the left” as long as nothing about bankers or the interest of bankers is involved. Several of the humanities professors are quite free to be on the left as long as this involves going to stirring demonstrations and the like, but not on the left when it involves, say, shunning a prominent and thoroughly nasty right-winger instead of treating them as a serious interlocutor. That would interfere with progression up the pundit ladder, and is therefore against everything that is right and good about public discourse, the pursuit of truth, etc.

Yup. Sounds about right.

And perhaps ties in with the wider reasons for the abdication of much “left politics” from the grubby business of electoral politicking (the primary lever on political power in the West) in the last generation or two. Politics that are “personal,” or largely sporadic and theatrical, or (in the case of anarchists) mostly involve the preening of personal virtue, require no action that would be either prejudicial to careerism or necessitate genuinely rocking the boat. All one has to do is profess the correct opinions in the correct company, and maybe (in certain circles) occasionally prattle about “the revolution” that will of course never happen, or will descend from the skies of its own accord.

It’s left largely to the people at or below the poverty line to say the impolite and “un-serious” things that might actually threaten the power structures producing the inequities… and when it happens, lo! See how the “contrarians” ride in to fill the gap! With remarkable consistency, trumpeting their conviction on behalf of intellectual freedom (to whatever arbitrary point serves their interests) all the while.

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Jim Buck 09.25.11 at 11:39 am

‘Sir Anthony Blunt (crime: betrayed dozens of serving agents to Stalinist Russia)’

No he didn’t! The Daily Star invented that calumny.

Just been persuing Miranda Carter’s excellent book on the noble Sir Athony (hero of Kursk). It was not the Daily Star that made up the slanderous accusation of Blunt sending 49 Dutch SOE agents to their deaths; it was rather the Daily Telegraph (18th November 1979). It’s possible that the writer of the Telegraph article had genuinely confused Sir Athony with another spy with a similar surname. What’s inexcusable though is that, when professional historians pointed out the mistake, the newspaper refused to disabuse its readers by publishing a retraction.

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bianca steele 09.25.11 at 3:55 pm

Rich P: It is actually a matter of how left someone is, because the Maxwell’s Demon question is always do you believe what I believe? if not, you’re a rightwinger, get out of here, and somehow that doesn’t seem to be working. If this weren’t the case, no one would care. I have no problem believing DSquared is on the left, but I do have trouble believing he’s defending his profession from a left perspective.

Jon H: Yes, if you don’t believe washing hands and sterilizing equipment is necessary–if your med school teachers didn’t do this–if your med school teachers took time out of their lectures for tirades against schools where they did do it (unlikely as this seems in this example)–it’s likely to be all a matter of regulations, incentives, and what you can get away with.

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X 09.25.11 at 3:58 pm

The banking industry and finance as a whole is obsessed with making returns on capital > than the average inflation adjusted rate of growth. It is possible to do so on a micro scale… investing in a smart better business beating out other businesses. But the story is different on the macro scale — consider the growth of all these returns compounding. Finance as a whole cannot reasonably perform this feat without some eventual consequence: Either A) an unsustainable bubble crashing these returns, or B) a massive redistribution of wealth to an investment class.

Both A and B happened, with median household wealth plummeting. Our solution to A was to make the investment class whole at the cost of the general economies. Trillions to save bankers so they could continue lending to each other, or simply extracting rents from the treasury… Government could have simply picked up short term lending, nationalizing or replacing, and instead spent their money putting people to work. Instead, the median household receives austerity, lower government wages, reduction of services, fewer jobs, etc.

Nothing has changed for the bankers, they continue extracting their %s from the real economy, and gradually building their way to the next bubble.

359

Gaspard 09.25.11 at 4:36 pm

“First they came for the bankers, and I did not speak out, because I was not a banker…”

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Brian 09.25.11 at 4:54 pm

361

Angels S 09.25.11 at 7:02 pm

Bruce J said: “They were done because the fees charged for originating those loans were an enormously profitable revenue stream, because the loan originators NEVER carried any of the risk; they were bundled and sold to the investment banks almost immediately; fraud on the part of borrowers and originators was not only rampant, it was an essential part of the business plan.

Then the banks sliced and diced the mortgages into CDO bonds, and paid the ratings agencies to rate them highly, again, fraudulently (it’s an open question whether the ratings agencies were criminally fraudulent or criminally incompetent).

Towards the end, when the loan originators had literally run out of people to loan money to, the bankers started selling ‘synthetic CDO’s, which were all the lower tranches of the regular CDO’s they couldn’t sell, resliced and diced and served up to the ratings agencies to magically have AAA tranches again.”

The “holier than thou” banksters were in collusion and deserve every sneer we can muster.

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Angels S 09.25.11 at 7:47 pm

To Tom west who said that greed is “human nature” I would say only if the sociopaths and Asperger crowd keep making that choice while they continue to breed…

The brain is complex, but it doesn’t take a rocket scientist to know that the high risk crack was and is an addiction and it is not hard wired into us. It is a selfish choice to believe greed is good and to make that your drive for life.

At one time, this drive would have been thought to be an illness, akin to living in some barbaric compound with the lesser animals. Why blame the banksters when they are just a part of the grand new reality show, where greed lust is the new norm and Ayn Rand is the come back kid.

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Rich Puchalsky 09.25.11 at 11:42 pm

Bianca Steele, I really do think that DD is on the left. But a good part of the left is like that, although some people are not quite arrogant enough to believe in their own rationalizations so completely. As for him “defending his profession from a left perspective” …. surely anyone here is capable of making up some convenient BS for why their defense is from a left perspective. Such as saying that they’re the real egalitarians.

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dsquared 09.26.11 at 12:04 am

Rich, I seem to remember from the last time we discussed this, three years ago, that you yourself work in a job as “someone who advises nonprofits on ethical investments”. In other words, a banker. So you might want to gently steer the conversation away from “BS rationalisations about why they personally are not involved”. Ye gods.

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Rich Puchalsky 09.26.11 at 12:12 am

That’s part of my work, sure. But am I writing posts about how bankers aren’t to blame for anything and it how popular anger at them is misguided? Nope. I’m not saying that you’re a criminal for being part of the class “banker”, I’m saying that you wrote a really foolish blog post for what appear to be highly CT-characteristic reasons.

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carping demon 09.26.11 at 12:31 am

“But who’s the real criminal?”

Well, if it ain’t you, and it ain’t me, then who the hell is it? I know, let’s look around and see which individuals have the most money, and how they got it. Then we can look around and see which individuals can’t feed their families, and why not. Then, we can just leave it that way, if you like, and ignore both sides’ whining.

(Only read to 69, so if this is redundant, toss it.)

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voyou 09.26.11 at 6:41 am

Rich P at 354:

That would interfere with progression up the pundit ladder, and is therefore against everything that is right and good about public discourse, the pursuit of truth, etc.

Are you saying that DSquared wrote a blog post defending bankers, in order to continue to benefit from being able to occasionally write for Comment is Free?

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Rich Puchalsky 09.26.11 at 12:25 pm

No, voyou, I’m not. I recommend trying that sentence again, this time along with the one before it. But I don’t think that anyone here makes a calculation of the form “I will write blog post X in order to benefit from Y” — blog posts are self-evidently too feeble a medium to sell oneself out for. Instead, I think that the attitudes that benefit them occupationally become such unquestioned parts of their worldview that they can write any kind of nonsense, deploying their ability to rationalize to make full reversals from their usual more-or-less leftist stances when it comes to items that affect them. If they really were sellouts, they might be better intellectuals.

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Guano 09.26.11 at 2:01 pm

“The point is, everyone in the business believed it’d be impossibly unlikely for home loans in aggregate – even NINJA ones – to reach a default rate higher than low-double-figures.”

“The point is, everybody who was “in the business” was actively working to avoid actually contemplating the possibility of large numbers of default.”

Exactly. And, in the same way, “everybody in the business” in the UK thought erroneouly that Iraq had illegal weapons because admitting that it might not would mean not standing should-to-shoulder with the Americans. “Everybody in the business” thought erroneously that Jonas Savimbi would win the 1992 elections in Angola because admitting that he might not would mean admitting that the US had spent 10 years providing military support to someone who was disliked in his own country. These unexpected, high impact, events are not so unexpected (except to people “in the business” who in fact just find them awkward.

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engels 09.26.11 at 3:01 pm

People hate bankers because they’re paid too much, and they’re mostly wankers. You want to be love, do something else. But please stop complaining, its undignified.

FTW

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marcel 09.26.11 at 7:25 pm

Daniel:

What happened to your other blog, http://d-squareddigest.blogspot.com/ ?

As I mentioned above, it’s been inactive for an unusually long time, but it looks like you didn’t renew it or something. Despite this turd, on the whole, I’ve enjoyed your blogging, here, there, and everywhere, and in the words of the immortal bard (B. Dylan) You’re gonna make me lonesome when you go.

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Henri Vieuxtemps 09.28.11 at 10:03 am

Oh, dear…

A new study from a Swiss university finds that financial traders are more uncooperative than psychopaths and that they have a greater tendency for lying and risk-taking.

As part of their executive MBA thesis at the University of St. Gallen in Switzerland, forensic psychiatrist Thomas Noll, a chief administrator at the Pöschwies prison near Zurich, and co-author Pascal Scherrer studied the behavior of 28 financial traders in a decision-making game, comparing their performances with those of people who were diagnosed as psychopaths.

They expected to find that, like the psychopaths, the traders would be uncooperative with others, but that they’d perform better at the game because, as Noll said, traders “are supposed to be good at making money. In social interactions, they’re supposed to be good at performing.”

But the two authors were shocked to discover that the traders were actually more uncooperative and egocentric than psychopaths when playing a prisoner’s dilemma game — a type of gaming scenario where participants can choose to cooperate or betray each other.

Moreover, even though the traders lied and took risks more than their psychopathic counterparts, their performance at the game was about the same as the control group. This means the traders not only didn’t play well with others, they also didn’t do any better at the game than regular Joes.

http://bottomline.msnbc.msn.com/_news/2011/09/27/7993962-traders-more-reckless-than-psychopaths-study-shows

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McDuff 09.28.11 at 12:49 pm

Well, this be interesting. I don’t know if Mr Davies is even still reading this, but despite the length of the comments thread I’m quite surprised that a couple of points haven’t been made (although many salient ones have).

I’m impressed that nobody yet has really engaged with the class aspect of it all. I don’t know whether it’s because it’s expected that you’ll buy into the liberal consensus at least a little bit, but I would have thought somebody by now would have pointed out that “bankers”, or at least the subclass of bankers who made all the money and all the decisions, in colluding with the governments of the world, were merely acting in the way that one would expect from the ruling class.

Creating a situation where extracting wealth from the peasantry to support their parasitic lifestyle is simply par for the course, for this class, so nobody should be horrendously surprised, but the depth of this collusion has had several democracy-nullifying effects. The major one being that at this time, in this country, it is impossible to say something resembling “tax the rich and give the money to the poor” without some media sycophant screaming about class warfare. The trouble is, there’s always been class warfare going on, and you started it. And that’s a you that, really, genuinely includes Dsquared in its ranks, as much of a good guy in favour of progressive taxation as he is.

The point is, you don’t really get to be part of a class which benefits from the privilege of wealth and power created by active collusion between finance, the media and politicians to create enough confusion over economics to enable you to continue to bleed the lower classes dry (“but you can afford a flat screen TV now! you couldn’t afford that when a single full time wage was enough to provide a moderate standard of living for a family of four, so you *must* be better off!”) and then turn round and say “but it’s down to you guys on the bottom rung to pull your socks up and tax us more.” WE don’t set the tax policy. YOU do. You’re part of the class of people who sets the limitations of acceptable debate and defines how far the parties are able to go in putting forward, I dunno, a plan to raise taxes on the rich and deficit spend in a recession. It might not be you, personally, and many “bankers” may not have that kind of clout, but those that do repeatedly fail to sit George Osborne down and explain to him that Keynesianism (or at least the part of Keynesianism that deals with deficit spending in a recession to prevent serious unemployment) works and if he knew how to add up he’d have worked it out himself by now.

In addition, there’s another problem, and that’s this guy and his species[1]. It’s interesting that people like this can so blatantly sit on the BBC and declare, not just that they are the enemy, not just that they a) run the world, b) pray for new recessions and c) don’t give a fuck about the rest of you proles, but that their rationales for doing so are among the most fatuous and specious kinds of sociopathy I’ve ever heard without anybody being able to call them on it or ask the correct question, which is why we even think we need this kind of scrotum-pimple to exist in our economy at all, let alone elevate him to a privileged position where he gets to make out while the rest of us suffer. Now fair enough he may not be representative of the subgenre “bankers” and any justified revulsion at him may have more splash damage than you might think is necessary. But on the other hand, the banking system, comprised of bankers, is on this guy’s side. None of the high muckety mucks in the system ever has (and almost certainly ever will) gone round to Number 11 and said “look, we’ve got a lot of very powerful sociopaths in our industry. They’re nothing but parasites, they make money from the despair of others and they have achieved so much power that they can actually create despair to feed upon. They are like cartoon villains in the movies, except actually real. We have to stop these people!” What they have, in fact, said, is “we need these people to ‘create wealth’ so that the rest of you can get iPhones and flat scren tellies. Before we take them back off you because you can’t pay your credit card bill.” When we associate “bankers” with syphilitic pond scum like that, it’s an associative link that, as a class, the financial sector is generally all too keen to maintain.

Fundamentally, your argument seems to be “you will never achieve an egalitarian society if you engage in this unseemly class warfare.” But I put it to you like this. How are we ever expected to achieve this egalitarian society if we don’t?

[1]Seriously, if you want an example of how even the lefty media colludes to hide the fact that class war has been declared and the opening barrages are not being fired by the working class, look at the headline there and compare it with the video. Did someone really watch that and go “oh, the most newsworthy thing about this that’s going to get everyone talking is his financial advice“?

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Earwig 09.28.11 at 2:25 pm

“this guy and his species”

Not sure about the “species,” but “this guy” turned out to be quite fraudulent. As in, he aint what he claimed to be.

Though mileage will of course vary, the episode seems to me to support Daniel’s point.

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John Emerson 09.28.11 at 4:56 pm

I have not found any verification that Alessio Rastani was a hoax. The Yes Man has denied that he’s one of them, and to my knowledge they usually take credit for their hoaxes.

The things he says don’t sound that much different that real Enron traders were caught saying around 1999-2000. Plenty of Randians out there.

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William Timberman 09.28.11 at 5:02 pm

John Emerson @ 377

Well, he ought to be a hoax, even if he isn’t. I’d sleep better if I could believe that such people didn’t exist, or if they did, were treated by everyone but their families as the village idiots that they are.

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MPAVictoria 09.28.11 at 5:21 pm

Do I think DD is a criminal who is personally responsible for the crash? No.
Do I think he is in this case blind to the realities of his profession? Yes.
Is this because his profession allows him to live a comfortable lifestyle with ample free time to post interesting and thoughtful musings on the interwebs (this piece of work exempted)? Possibly

Whatever the reason I am going to continue to look forward to DD’s posts here on Crooked Timber though with perhaps a little more scepticism then in the past.

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Tim Wilkinson 09.28.11 at 7:19 pm

##373, 379 – the thing about finding a turd in the punchbowl is that it not only radically diminishes the allure of continued drinking, but casts a queasy miasma of suspicion over what has already been consumed.

#378 If he exists it is necessary to disinvent him

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Martin Bento 09.28.11 at 9:08 pm

Since this thread seems to have lumbered back to life, let’s look at the borrowers who caused this by “taking loans they could not afford”. Any time you take a loan, you are doing so based on some assumptions about the future: if that is irresponsible, all borrowing is irresponsible. You may be able to afford the loan expecting to keep your job, but then you get laid off. All of these outrageous loans – the balloons, the adjustables, even the neg ams – were perfectly affordable to anyone who could maintain the teaser rate for a few years *provided housing prices continued to rise at the same rate that they had for the previous few years*. With 20% capital gains a year in the strong markets (which were the ones that crashed), you could in a few years either refi to something much better (with no improvement in your financial situation otherwise, just a much better loan-to-value ratio) or sell and take your profit. What these people did wrong was believe the boom would last a few more years than it did. They did not even need to think it would last forever, though it seems to me that Wall Street did need to think this to not believe a crash was coming. So Wall Street claims the expertise and makes the much more fundamental intellectual error (being perhaps too generous and assuming for argument that they did not know a crash was coming, rather than that they did know it, but knew also that they would not personally suffer the consequences, at least sufficiently to erase their gains), yet the people are to blame.

If you’re going to valorize the authority of intellectual elites, then you have to hold those elites accountable for their intellectual errors *before* you think to blame the public who were listening to them. If you want the public to listen to the elites, then, if the elites are wrong, the public must get none – *none* – of the blame. Alan Greenspan, acclaimed at the time to the public as the economic genius of the age, and, as Chairman of the Federal Reserve, an institution where banks have considerable formal power, the closest thing to an official spokesman for the economic elite, told the public they were being “irrational” if they did *not* want to switch from old-fashioned loans to the new-fangled things. “Irrational” is the key word of condemnation from the intellectual elite: it is applied to those who deny global warming, or believe the Book of Revelation to be a reliable guide to future world events. People who accept man-made global warming do so primarily on the say-so of elites; they can’t verify this for themselves. If we are going to define believing what the elite say as rational, then when elite opinion as transmitted to the public is wrong, the elite must take full responsibility, and all other intellectual elites should be insisting on this loudly, or the repute and influence of all intellectuals will fall further and rightly so. With authority comes responsibility. And the bankers count as intellectuals in this context because they are treated as experts by the media. If other intellectuals disagree with this, they should be loudly disputing bankers’ and traders’ claims to expertise.

Oh, BTW, no, I did not take a mortgage during the boom.

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JanieM 09.28.11 at 9:22 pm

Earwig: …he aint what he claimed to be.

John Emerson: I have not found any verification that Alessio Rastani was a hoax. The Yes Man has denied that he’s one of them, and to my knowledge they usually take credit for their hoaxes.

I don’t know what he “claimed to be,” but it doesn’t seem that he’s what he was billed as.

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SamChevre 09.28.11 at 9:55 pm

All of these outrageous loans – the balloons, the adjustables, even the neg ams – were perfectly affordable to anyone who could maintain the teaser rate for a few years provided housing prices continued to rise at the same rate that they had for the previous few years.

This, I would amplify–but note that the “previous few years” here is at least 25 years.

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McDuff 09.28.11 at 11:46 pm

I stand corrected. So far, no person profiting off the recession has admitted in public that they experience no moral qualms about doing so.

I suppose we should be grateful that the appearance of morality is still important.

However, contra William Timberman, I don’t believe that it’s possible to sleep easier in your bed at night just because no such admissions have taken place. Aside from the fact that, actually, many people do regularly admit to such beliefs (albeit in scholarly articles rather than by getting themselves plastered all over the BBC), there remains the matter of behaviour. A great many individuals and institutions within a certain class certainly behave *as if* they believe that kind of thing, or at least some mutated flavour of it, which makes the issue of whether they say they believe it, or believe they believe it, somewhat moot. Many of them may well believe that they are, indeed, making the world a better place when they sell the inflated junk that makes the financial world go round. In which case they are to be pitied and protected from themselves, lest they cause more injury.

Now, it may not be helpful in one sense to assign “cacklingly evil” motives to such people for the intent of ascribing blame or responsibility or good old retributive justice purposes. But on the other hand, from a policy point of view it certainly makes sense to pay attention and say, look, if we let the financial services sector get too big for its boots, it will attract a fuckton of pretty odious bastards who are both morally and intellectually not all there. We should do something about that, because it seems like a problem.

Unfortunately, what we actually did in this country was elect a different (albeit not exactly unrelated) bunch of morally-bereft intellectual midgets to run the country, in the hopes that would fix everything. Ah, democracy!

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michael e sullivan 09.29.11 at 4:12 pm

I gotta say that 380 really brings the comedy gold in the “using high-falutin’ language to state the obvious” category. [Note that I come to praise Tim W, not mock him -- I assume the effect was intentional]

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