Michael Lewis, author of “The Big Short: Inside the Doomsday Machine”, talks about the Wall Street casino on 60 Minutes. The Times reviewed his book this morning. Meanwhile, it is clear that the financial reform package that Sen. Dodd is planning to unveil this afternoon is far from being a humdinger. Also these United States risks losing our triple A rating...  The downgrade really should mean zilch given the fact that rating companies like Moody's are part of the casino...

Cleaning up Wall Street Oligarchy

Interesting ideas from the Atlantic on cleaning up the detritus of large banks looming over on Wall Street.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5trillion (or 10percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole. This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy. Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations. This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

(via James Kwak of Baseline Scenario)

About that hedge fund called Iceland

A tale of Iceland where yesterday's fishermen suddenly morphed into investment bankers (and are 'unmorphing' right back into what they do best - fishing).

From Vanity Fair: When Neil Armstrong took his small step from Apollo 11 and looked around, he probably thought, Wow, sort of like Iceland—even though the
moon was nothing like Iceland. But then, he was a tourist, and a tourist can’t help but have a distorted opinion of a place: he meets unrepresentative people, has unrepresentative experiences, and runs around imposing upon the place the fantastic mental pictures he had in his head when he got there. When Iceland became a tourist in global high finance it had the same problem as Neil Armstrong. Icelanders are among the most inbred human beings on earth—geneticists often use them for research. They inhabited their remote island for 1,100 years without so much as dabbling in leveraged buyouts, hostile takeovers, derivatives trading, or even small-scale financial fraud. When, in 2003, they sat down at the same table with Goldman Sachs and Morgan Stanley, they had only the roughest idea of what an investment banker did and how he behaved—most of it gleaned from young Icelanders’ experiences at various American business schools. And so what they did with money probably says as much about the American soul, circa 2003, as it does about Icelanders. They understood instantly, for instance, that finance had less to do with productive enterprise than trading bits of paper among themselves. And when they lent money they didn’t simply facilitate enterprise but bankrolled friends and family, so that they might buy and own things, like real investment bankers: Beverly Hills condos, British soccer teams and department stores, Danish airlines and media companies, Norwegian banks, Indian power plants.

...Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. There are, of course, a few jobs in Iceland that any refined, educated person might like to do. Certifying the nonexistence of elves, for instance.

Photo

Seen on the intersection of Clove Road and Victory Blvd, Staten Island, NY

From an essay last year on what a depression might look like in today's times...

By looking at what we know about how society and commerce would slow down, and how people respond, it's possible to envision what we might face. Unlike the 1930s, when food and clothing were far more expensive, today we spend much of our money on healthcare, child care, and education, and we'd see uncomfortable changes in those parts of our lives. The lines wouldn't be outside soup kitchens but at emergency rooms, and rather than itinerant farmers we could see waves of laid-off office workers leaving homes to foreclosure and heading for areas of the country where there's more work - or just a relative with a free room over the garage. Already hollowed-out manufacturing cities could be all but deserted, and suburban neighborhoods left checkerboarded, with abandoned houses next to overcrowded ones.
And above all, a depression circa 2009 might be a less visible and more isolating experience. With the diminishing price of televisions and the proliferation of channels, it's getting easier and easier to kill time alone, and free time is one thing a 21st-century depression would create in abundance. Instead of dusty farm families, the icon of a modern-day depression might be something as subtle as the flickering glow of millions of televisions glimpsed through living room windows, as the nation's unemployed sit at home filling their days with the cheapest form of distraction available.

Quotable

"I would like him to be in a solitary cell with a screen, and on that screen, for at least five years of his life, every day and every night there should be pictures of his victims, one after the other after the other, always saying 'Look, look what you have done to this poor lady, look what you have done to this child, look what you have done. Whatever is to hurt him, I think should be invented, because he deserves it"

--- Writer Elie Wiesel on swindler Bernard Madoff. From here.

So true...

From the March 2nd, 2009 issue of the New Yorker.

We need more of this...

"At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes” (From here)

- John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division after the U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 U.S. customers with secret Swiss accounts.

Chronicles in the lives of clueless investment bankers

I wish more senators felt like this towards the goons from Wall Street pontificating on the Hill yesterday.. That was House Representative Michael E. Capuano representing the 8th Congressional district of Massachusetts. Loved him!



I found this factoid on his webpage: Over the course of Bush's presidency, the public debt increased by $4.9 trillion or about $19,000 per second!