I watched a film on September 14th 2008, because it "felt" appropriate. The film was Wall Street, by Oliver Stone, and the week was the unraveling of the world wide credit system.
Greed is good.
-Gordon Gekko, Wall Street
A few nights ago, as I fell asleep, I was writing in my mind a diary about greed, self-interest and survival, in the market. I woke to find some of my diary already written, by Cenk Ugyur (of the Young Turks.) Great minds think alike, I guess.
The point, of course, isn't new, but it does deserve repeating, until people listen.
The moral of Wall Street, the movie, is that pursuit of the quick buck, corrupts you. The real Wall Street learned nothing.
"Survival is good, Self-interest is better, Greed is best of all"
-Gordon Gekko's real life corporate alter ego
Financial institutions aren't black boxes of credit, profit and loss. They are a collection of people. Mostly (I don't want to make sweeping generalizations, but it's not unfair to say,) greedy people.
It was assumed, by conservatism, that three competing arguments would keep corporations "working". First, self-interest and greed would ultimately make the company profitable, thus benefiting the shareholders. Second, that these people would understand extreme risk threatened their self-interest, and thus corporations would be safe (or die, and other corporations take their place -- though A.I. "Too big to fail" G. proves this wrong) Third shareholders would hold corporate officers accountable for personal greed, thus keeping corporate excess under control.
Reality kicks out a leg of the conservative stool
Epic Fail. Epic enough, that Alan Greenspan, one of the godfathers of financial conservatism, said, with surprise that this very system "failed." He didn't know why.
The reason for the failure was that executives made decisions based on the proximity to their benefit. That is, if something benefited their company, that's good. Benefit their department, better. Benefit them? Best of all.
Why did the survival instincts and the last line of defense, investor protest fail? Two reasons... credit rating agencies and greed.
Why the entire Credit Ratings system did not work
Credit rating agencies (E.G. Moody's) have an implicit conflict of interest. They provide ratings "proving" the credit worthiness of debt and other promises to pay. They don't do this as a charity. They are payed to do so, by the very companies that they are supposed to be rating. There is a competitive market, supposed by conservatism to be a check-and-balance, but ultimately just a cartel.
Thus a company can shop for a good rating. It is not in a Credit Ratings company's self interest to look TOO closely (Credit Rating agencies.. unsurprisingly, greedy.) Now Credit Raing Agencies claim that auditing actual portions of a loan wasn't their job. Greed is stronger than survival instincts.
Individual shareholders don't typically do a lot of professional due diligence, but they'd probably not be too happy about greed winning over risk. Institutional investors do care about risk, typically but they trusted the Credit Agencies, plus, they are part of the financial elite, and it wasn't all of their money at risk here.
If you don't want the market regulated, appoint an idiot or a crony
The way I would explain this is Michael Brown, the tragically unprepared head of FEMA. Arabian Horse Association to FEMA. Bush appointee. Enough said.
The Cox, Donaldson and Atkins appointees have been an unmitigated disaster for the SEC, if the intent was to police the markets.
Cox did not accomplish these changes on his own. Internal agency politics, critics say, played a major role, with Cox’s Republican colleagues, particularly Paul Atkins, pressing him to roll back enforcement and rein in the division’s independence. Beginning in late 2007, the White House, which nominates S.E.C. commissioners, helped clear the way for retrenchment in enforcement by delaying the replacement of two Democratic commissioners whose terms had ended. From January through July 2008, the commission had just three members, all Republican. This gave Atkins and Kathleen Casey de facto veto power over the more moderate chairman.
... One former S.E.C. official claims to have heard Atkins remark that he believed that the S.E.C. was "unconstitutionally constituted." Atkins denies this, saying that if he had believed the S.E.C. was unconstitutional, he would not have served on the commission. But a friend of Atkins’ says, "If you surprised Paul and asked him what he really thinks of the S.E.C., he’d probably say, ‘Blow it up.’
- Paul S. Atkins entry at wikipedia (emp mine)
Harry Markopolos, the whistleblower in the Madoff ponzi scheme has frequently said that the staff at the SEC are effectively lawyers and not skilled in finance. They can spot the typo in the legal language, but not the obvious illegal financial scheme in the numbers.
Clearly, having appointees that wish to "blow up" the S.E.C. will not result in an effective agency.
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Postscript.. This is not complete. There is just too much fail for one diary, and only so much attention a reader can give. I would part saying that Conservatives just don't get that we had a referendum on "wealth redistribution" last November, and the people spoke. Yes. We wan't the rich taxed a little more. Yes. We wan't to redistribute those proceeds more equitably. Don't like it Conservatives? Take it up with the voters.