Wall Street – Many Things Considered

Catholic Church, Economy, Film, Journalism, Wall Street

Grab the Pitchforks

Posted on December 27, 2015by christian

“The CDO – collateralized debt obligation – was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.”
― Michael Lewis, The Big Short: Inside the Doomsday Machine

—–

If you are able to sit through a screening of Adam McKay’s outstanding new film The Big Short and not feel, as New York Times critic A.O. Scott says, like “going out to the garage to look for a pitchfork” in order to slay the villains, there is a good chance you are: 1) a partner at Goldman Sachs, 2) a Republican U.S. Senator who has been voting to dismantle the weak financial reforms put in place after the Great Recession, or 3) clueless.

Christian Bale plays Michael Burry, an eccentric fund manager who bet short in The Big Short — Christian Bale plays Michael Burry, an eccentric fund manager who bets short in the movie “The Big Short”

The Big Short, a wildly inventive and superbly acted film that is both comedy and tragedy, joins Spotlight, a morality tale, also superbly acted, in exploring the corruption inherent in absolute power.

Both films show us again that Hollywood, the very essence of America’s unceasing appetite for excess, can – at least once in a while – bring about the self-reflection that is distressingly missing among those wrapped in privilege and pampered by power and money.

Recent History…Already Being Forgotten

McKay’s film, based on the bestselling book by Michael Lewis, focuses on the years immediately before the Great Economic Meltdown of 2008 when a handful of investment “outsiders” detected the inevitable bursting of the housing bubble that ultimately brought the U.S. and world economy to its knees. These outsiders, seeing the interconnecting disaster of sub-prime mortgages, mortgaged backed securities, CDO’s, credit default swaps and billions and billions of dollars, decided to beat the rigged “system” where big banks, credit rating agencies and government regulators quietly (and in some cases ignorantly) allowed massive financial fraud to occur.

These outside guys bet “short,” made billions off the fraudulent system and then watched in disbelief as the high rolling Wall Street banking crowd walked away from the wreckage almost entirely unscathed. Others, of course, were not so fortunate. As the film points out a cool $5 trillion dollars was lost when the housing market finally crashed and took with it pension funds, life savings, 401K investments, and the jobs, homes and futures of people who deserved much better.

In the dying days of the George W. Bush Administration the American taxpayer stepped in and bailed out the banks, with the notable exception of Lehman Brothers. The bankers then used vast amounts of the bailout funds to reward themselves with huge bonuses. As the Times reported in 2009, “At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.”

No harm, no foul, but in fact there were both. There has been virtually no prosecution of the clear fraud that occurred – only one relatively low level banker went to jail – while business quickly returned to normal in the canyons of finance in lower Manhattan. Oh, there were financial penalties for many of the guilty firms, but most were sufficiently small to qualify as “a cost of doing business,” even when the business is built on fraud.

Actor Steve Carrell in "The Big Short" — Actor Steve Carell in “The Big Short”

In one of the most chilling scenes in a movie full of startling scenes we look on as one of the “short sellers,” played perfectly by Steve Carell, is quizzing one of the big bank managers about who he really represents as he packages and repackages the mostly worthless mortgages – he knows they are worthless – that he then peddles to his unsuspecting investors.

“Who do you work for,” Carell’s character demands to know. The bank guy smiles and says, “the investors.” That is, of course, the very definition of fraud.

Given our startling short attention span it is probably not surprising that most of the political and economic elite – Bernie Sanders excepted – have moved on from these events of less than a decade ago. Wall Street is busy devising new, esoteric investment devices, many barely regulated and even more minimally understood. Meanwhile, as though it all never happened, Hillary Clinton – and every Republican who can – goes to Wall Street for campaign cash, while promising to be tough on the same people who write the checks. The recently passed federal budget deal included, thanks to lobbying by the financial industry, a provision blocking the Securities and Exchange Commission (SEC) “from taking action on a long-discussed rule requiring publicly owned companies to disclose their political giving.”

Surely They Have Committed a Terrible Crime

As stunning as the lack of fraud prosecutions is the easy return to the status quo for Wall Street. One voice in the wilderness has been U.S. Federal Judge Jed Rakoff who has courageously and indigently refused to sanction several settlement agreements struck by the SEC with the bankers who caused the big collapse. Rakoff has written and spoken widely on the tepid regulatory and prosecutorial response to the Great Meltdown and singlehandedly has shamed regulators into insisting that some banks pay higher fines. But, the judge remains dismayed – as viewers of The Big Short certain will – that individuals who clearly committed fraud are still spending their weekends in the Hamptons.

“You have to be careful,” Rakoff told The Nation in 2014. “It’s easy to descend to scapegoating here. But to this very day, it concerns me that too many people in positions of authority do not realize how, even now, there are so many people suffering as a result of this financial crisis. There are millions of people out there who have lost their jobs, have no prospect of getting any good job, have exhausted their resources and are living lives of destitution and hopelessness. If there are people to blame, surely they have committed a terrible crime.”

Indeed. Go see The Big Short and next time you encounter an elected official who could have done more back then and could still do more now ask them if they are ready to explain the next big crash; the economic turmoil that surely will tumble forth again from the greed and corruption that is so deeply embedded in our financial system.

Spotlight on Corruption in the Catholic Church

The other great Hollywood study in power and corruption this season is the real life journalism drama Spotlight,the story of the Boston Globe’s investigations that exposed the extent of the clergy sex abuse scandal in the Boston Archdiocese. The film is exceptional on several levels. It is the best thing Hollywood has every produced showing how journalism really works, but it resists glorifying the scruffy reporters who miss stories right in front of them, descend into numerous rabbit holes, but still doggedly pursue corruption in high places, in this case all the way to the top – Cardinal Bernard Law.

Poster for "Spotlight" — Poster for “Spotlight”

Tom McCarthy’s movie has generated much Oscar buzz despite or perhaps because, as Rolling Stone critic Peter Travers noted,”there’s not an ounce of Hollywood bullshit in it. Our eyes and ears are the Spotlight team, played by exceptional actors who could not be better or more fully committed.”

At the heart of the church’s ugly and widespread scandal is the sobering fact that so many knew for so long what was happening and still did nothing. Lawyers, priests, bishops, well-heeled Catholics who enjoyed being on a first name basis with the Cardinal simply chose to look away. Few, very few, attempted to confront the power and influence of the Catholic Church, an institution as big in Boston as the Red Sox.

Ultimately, it took a Boston outsider, a Jewish editor in a Irish-Catholic town, Marty Baron, now the executive editor of the Washington Post, to zero in on the obvious issue: where does the real corruption come from? At one point Baron’s reporters are ready to publish a story on abuses by a few priests, but he says no. The story is bigger than just the individuals involved, he thinks. They need to go work some more. Ultimately, this is a story of institutional corruption that goes all the way to the top and the Spotlight team got the story.

A Failure of Accountability

Spotlight also draws into sharp focus the genuine threat to a democratic system from the continuing disappearance of the kind of investigative and accountability reporting that made the Globe’s critical stories possible. Critic David Sims correctly says by not cheerleading the journalist’s efforts, but “by quietly celebrating the work of The Globe’s reporters, McCarthy makes a far more consequential argument for the value of smart reporting and robust local newspapers.”

Still one wonders in the era of “click bait” journalism, shrinking newsrooms and a constant re-definition of news whether in the not-too-distant future big, powerful, corrupt institutions will have little if anything to fear from their local newspaper.

Not unlike the guilty in the financial meltdown featured in The Big Short, Bernard Law mostly walked away from his fraud, the 550 victims of abuse in the Boston archdiocese and the $85 million the church paid to settle abuse claims.

The retired Cardinal was forced to step down in Boston, but now lives comfortably in a modern apartment “in a very nice building,” near the Vatican in Rome. Reporters tried to talk to Law when Spotlight was released, but he was not available to answer questions. He, unlike the victims he failed, seems to have moved on. Law will have to wait for his ultimate accountability, as he must surely know.

Both these stellar films are classic tales of corruption, greed and the corrosive effects of money and power, but perhaps what they most share is the spotlight they turn on our culture’s frequent failure to hold those responsible in such egregious cases truly accountable.

Both these films stop short of preaching and seem instead to suggest that all of us have moral choices to make about the frauds and failures in a society that too often has trouble separating the important from the trivial. If we are content to shrug off the latest outrage then can we ever hope that politicians and church leaders, regulators and bond rating agencies will do a better job exercising their responsibility?

When fraud committing bankers are allowed to walk away from the financial wreckage they created, pockets bulging with seven figure bonuses and when one of the high priests of the Catholic Church seamlessly moves on from what may be the worst failure of accountability in the modern history of the institution one is left to wonder only one thing: how bad will it be next time?

Baseball, Campaign Finance, Christie, Poetry, Politics, Wall Street

The Appearance of Influence

Posted on March 17, 2015by christian

“…this Court now concludes that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption. That speakers may have influence over or access to elected officials does not mean that those officials are corrupt. And the appearance of influence or access will not cause the electorate to lose faith in this democracy. “ – Justice Anthony Kennedy in Citizens United v. Federal Elections Commission, 2010.

Generally speaking there are two types of political scandal: the sex scandal and the money scandal.

The first type of scandal, perhaps for obvious reasons, gets more attention from public and press. Think of Bill Clinton and the blue dress, Mark Sanford hiking the Appalachian Trail all the way to his Argentine mistress, General David Petraeus going all in with his biographer (and sharing much more than pillow talk) and, of course, the continuing saga of former Senator Larry Craig’s wide stance in the Minneapolis airport. One could go on and on – Packwood, Weiner, Edwards – it is a long, long and bipartisan list.

The other type of scandal – the money scandal – is generally less memorable, but also more important. Political sex sells and fuels late night comedy. Political money merely corrupts. Like political sex scandals, political money scandals are a bipartisan problem and unlike what Justice Kennedy naively (or cynically) wrote in that Supreme Court decision, vastly expanded access to money and private influence in our politics has, and will continue to erode “faith in this democracy.”

Several recent cases still in the news make the point: Illinois Representative Aaron Schock, former Oregon Governor John Kitzhaber, would-be president Hillary Clinton and Senator Robert Menendez or, if you prefer, Governor Chris Christie of New Jersey are in the top-of-mind scandal class. (It probably goes without saying that in any list of political scandals involving money, New Jersey is routinely entitled to two mentions.)

Schock is the junior Republican from Peoria who first came to national prominence when a Washington Post story reported on the elaborate Downton Abbey-like redecorating of his Capitol Hill office, a real estate makeover that likely constituted an illegal gift. It didn’t take long for the deep red walls and Edwardian touches to gave way to more important insights into Schock’s extensive connections to his wealthy donors. As the Post reported recently, the Congressman’s Lord Grantham moment “prompted a flurry of stories about his use of private charter planes that he says are to get around his district, concert ticket purchases, trips overseas and other forms of travel.” Expensive tastes are hardly an indictable offense, but failing to report gifts from donors or using their airplanes improperly may well be and Schock has now announced his resignation, likely just before his indictment.

There have been so many twists and turns to the sad and bizarre Kitzhaber saga in Oregon that is has become difficult to keep track of all of them, but it seems clear that an underlying theme in the tangled web that drove the four-time elected governor from office was…wait for it…money.

Kitzhaber’s fiancée seems to have been obsessed by making money and oblivious to how her public role created conflicts, or worse, for the couple. In another case, as reported by Willamette Week, Kitzhaber courted one of his biggest campaign donors, a developer who had given candidate Kitzhaber more than $65,000 since 2010, by attending a “summit” organized by the donor, who incidentally regularly complained to the governor about state environmental regulators. As the paper noted following the “summit,” which Kitzhaber had flown to on the donor’s private plane, the then-governor “asked a fundraising consultant how much money [the big donor] had given his re-election campaign so he could hit up another summit attendee…for the same amount.”

The Hillary Clinton case is even more obtuse, but no less troubling, involving Clinton the Secretary of State, Clinton the world famous mover and shaker of the Clinton family foundation (which has received millions from corporate and foreign sources) and coming to a campaign trail near you soon, Clinton the presidential candidate. If you think the recent flap over Hillary’s emails (particularly the ones that have been destroyed) doesn’t involve the intersection of her official work at the State Department and her work, as well as her husband’s and daughter’s, with the high flying Clinton foundation, and now the need to raise a billion dollars or so to run for the White House, well I have some aluminum siding I’d like you to consider.

A CBS New investigation found that one donor to the Clinton Foundation, “Rilin Enterprises – pledged $2 million in 2013…The company is a privately-held Chinese construction and trade conglomerate and run by billionaire Wang Wenliang, who is also a delegate to the Chinese parliament…The firm owns a strategic port along the border with North Korea and was also one of the contractors that built the Chinese embassy in Washington. That contract is a direct tie to the Chinese government.” We haven’t heard the last of these kinds of stories and she hasn’t even announced.

Senator Menendez’s scandal seems to involve more garden-variety type corruption – doing big favors for a big donor. For months the Justice Department has been looking into the connection between the Soprano State senator and a wealthy South Florida eye doctor, Salomon Melgen, who clearly loves Menendez. As Slate has noted, the doc and his family “gave $33,700 to Menendez’s 2012 re-election campaign, as well as $60,400 to the Democratic Senatorial Campaign Committee while Menendez served as its chairman during the 2010 election cycle. But the biggest contribution by far was a series of three payments totaling $700,000 that Melgen’s business gave in 2012 to Majority PAC, a Democratic super PAC that in turn shoveled nearly $600,000 toward Menendez’s re-election that year. Melgen also paid for two free trips that Menendez took in 2010 to Melgen’s seaside mansion in the Dominican Republic,” a gift that Menendez did not initially disclose, but for which he later paid $58,500 to reimburse.

And what did the donor get beside the stimulating company of a United States Senator? “In recent years,” Slate reports, “Menendez repeatedly interceded on Melgen’s behalf in a dispute with the Centers for Medicare and Medicaid Services over allegations that Melgen had overbilled Medicare for millions of dollars for injections he was performing on patients with macular degeneration. Menendez has also been pressing on Melgen’s behalf to help him see through a deal he has to sell port-screening equipment to the Dominican government.”

The latest Chris Christie greasiness in New Jersey rings of the kind of thing that the notorious Boss Tweed did across the Hudson more than a century ago – hand out tax breaks, contracts and other goodies to the politically well-connected and then sit back and reap the rewards. As the Associated Press reported this week, on Governor Christie’s watch, “New Jersey has authorized more than $2 billion in economic development tax breaks since 2014, often to corporations with notable political connections. One grant went to a developer who owes millions of dollars on an unpaid state loan.”

Christie’s administration lavished more than $600 million in tax breaks on Camden, New Jersey, (population 77,000) an amount four times the city’s annual budget. As AP notes, “As money has flowed to development in Camden, some trickled back into politics. Camden tax incentive recipients donated more than $150,000 to the Republican Governors Association during the time Christie ran it. But no donations are as notable as those from Pennsylvania developer Israel Roizman. Last February, the state awarded tax incentives worth $13.4 million to Broadway Associates 2010 LLC, a real estate development company he controls. The project in question: refurbishing 175 low-income housing units that deteriorated under two decades of Roizman’s ownership.”

It turns out Roizman – and here is proof that the acrid stench of corruption smells of bipartisanship – was a big “bundler” of campaign cash for Barack Obama, but also thoughtfully “donated $10,000 to the Christie-led [Republican] governors association in late 2013, a few months before receiving his tax breaks. Last year, he gave the group the same amount.” Meanwhile, the developer owes the New Jersey housing agency “$6.2 million in unpaid loans on another Camden housing project.”

There may be perfectly simple explanations for all these unrelated cases and it would not be correct to say the corrosive Citizens United decision alone ushered in a new era of corruption in our politics. The country’s convoluted campaign finance apparatus is so complex that it has spawned an entire industry of lawyers and consultants who make it their life’s work to navigate the system.

Still, to believe that cases like Schock, Kitzhaber, Clinton, Menendez, Christie and many others can be innocently explained away, one must accept the idea that really wealthy people give money to political candidates simply out of the goodness of their hearts or because of their passionate belief in the candidate or the cause. (Some do, of course, but their commitment could be demonstrated just as fervently by a check for a thousand dollars as it is by donating what for many Americans would be a sizeable bank account.) At the same time the innocent explanation of a situation involving money and politics that also has “the appearance of corruption” demands embracing the idea that candidates, particularly when they are recipients of really, really big checks and personal favors from donors, are totally immune to the concept of quid pro quo. There are many honest politicians, but we don’t make laws – nor did we once limit campaign contributions – because of the honest people.

Political corruption has existed since Caesar and human nature being what it is there will always be some fast buck artist angling for some favor from some powerful person. But with the adoption of the philosophy, sanctioned by the United States Supreme Court, that anything goes when it comes to money and politics we can expect Justice Kennedy to more-and-more be feasting on his words.

Unlimited, largely unregulated money in politics does give rise to both the appearance and the reality of corruption. The excesses will only grow worse over time in direct proportion to the electorate’s loss of faith in this democracy. Makes you long for a good political sex scandal.

Baseball, Christie, Mansfield, Politics, Wall Street

I Am Not A Bully

Posted on January 12, 2014by christian

It’s too early to know for sure, but I’d be willing to bet that the third paragraph of Gov. Chris Christie eventual obituary will include the words “I am not a bully.” Those five words, like Richard Nixon’s “I am not a crook,” may well end up defining Christie’s life on the American political stage.

There is a truism in politics that the worst wounds are those that are self inflicted. The next most damaging wounds are those that are not quickly recognized as potentially deadly and are allowed to grow and fester. Both types of political wounds are present in Gov. Christie’s George Washington Bridge scandal.

The tough and combative Governor of New Jersey stood before cameras last week and apparently did himself enough good in explaining away any personal involvement in “Bridgegate” that the bleeding has been stopped. Christie, however, is not out of political intensive care for lots of reasons. The political payback scandal that shut down portions of the world’s busiest bridge linking New Jersey and New York is the worst kind political scandal simply because it is so readily understandable to voters. Everyone has been caught in a traffic jam. No one expects a politician, or his staff, to actually engineer a traffic jam. This is far from over.

Christie has fired his deputy chief of staff and another top political aide, but the governor did not act until those moves were forced upon him by the release of documents that implicated his staff members in the effort to payback a small town Jersey mayor who had declined to endorse Christie’s recent re-election. Two other Christie appointees to the Port Authority, the agency that runs the George Washington Bridge, resigned some ago, but the governor flush from a resounding re-election win repeatedly failed to act to deal with the damaging political fallout. The result: a self-inflicted wound and a supremely damaging delay in responding.

Two observations about both good politics and good management based upon what I know about how a governor’s office operates, or should operate:

1) Being hands on is not a crime for a politician. It may be more work, require more hours in the day and it may even force more decisions to be made at the top, but for voters it should be a given that an elected official, particularly a governor, attends to a million details. When you wall yourself off from the details you get burned. Even if you believe that Christie didn’t know about the chaos caused by the lane closures leading to the GW bridge the fact is that he should have known and certainly should not have been the last to know. According to press accounts Jersey commuters were complaining plenty about the traffic jams when they occurred last September.

The Fort Lee, New Jersey police chief told a columnist for the Bergen Record on September 12 that during “four days of gridlock we’ve been asking the Port Authority what problem they’ve been trying to fix, and so far we haven’t gotten any answers.” Governors exist to get answers to such questions. Christie, with several very senior appointees serving at his behest on the Port Authority Board, could have solved the bridge closure with a single phone call. It stretches credibility to think the tough guy, no nonsense and self-described hands on governor wasn’t curious enough to ask someone “just what the hell is going on?”

It would be like Butch Otter in Idaho not following up on a very public issue with the Fish and Game Commission or John Kitzhaber in Oregon sitting around while Nike leaves town. Governors are paid to stay on top of problems.

The best your can say for Christie – the best – is that he was so consumed with running up the score in his November re-election that he didn’t read the morning papers in September. If that’s the best case then the governor really is guilty of gubernatorial malpractice. That the boss didn’t know or that his underlinings thought it appropriate that he not be informed is simply mismanagement – mismanagement at the top.

2) The other observation so far from “Bridgegate” is that the best you can say for Christie’s inner circle – the best you can say – is that he fostered or allowed to be created a culture where a senior staff member, the fired deputy chief of staff, could take it upon her own to play such silly and damaging political games. The Christie culture smacks of arrogance and, frankly, a small-minded pettiness that would not exist unless the tone had been set from the top. In this failure, too, the buck stops with the governor.

Chris Christie – and Barack Obama for that matter with his detached management style – should take many lessons from such political and management failures, but one lesson that should be seared into any politician’s ambition is the fact that it is the rare elected official who gets in trouble for acting too quickly. Christie, allegedly at the top of his craft and on the way to serious contention for the GOP nomination for president, gets a D-minus for not seeing problems and moving quickly to correct those problems.That is the best you can say about his scandal.

If it turns out that more traffic cones start to drop, or that Christie had knowledge he’s not fessed up to, or that he actually ordered or allowed the petty political payback to take place then all bets are off. Let the subpoenas issue and the investigations begin.

If it turns out that Christie’s marathon news conference was just an effort at immediate damage control and his story doesn’t hold up in the details then the Nixon analogy will have come full circle. Another absolute rule of political scandal is that the cover-up is always more damaging than the original sin. In that case “I am not a bully” will morph into “I am not a crook.”

2014 Election, Al Gore, Borah, Bush, Christie, Church, Economy, Nebraska, Theodore Roosevelt, Wall Street

Bigness

Posted on April 25, 2012by christian

An Old Notion Relevant Again

On the downhill side of the Gilded Age in American political and business life – that would have been in the late 1800’s – progressive reformers from Theodore Roosevelt to Woodrow Wilson to Louis Brandeis found fault with the idea and reality of a concentration of economic power.

Brandeis, a great legal advocate before he went on the U.S. Supreme Court in 1916, described the threat of economic concentration by a single, simple word “bigness.” Brandeis entitled one of his greatest works, published in 1913, Other People’s Money and one chapter in that book was called “The Curse of Bigness.”

“Size, we are told, is not a crime,” Brandeis wrote, “But size may, at least, become noxious by reason of the means through which it was attained or the uses to which it is put. And it is size attained by combination, instead of natural growth, which has contributed so largely to our financial concentration.”

Today it is almost an article of faith that “bigger is better,” but the early 20th Century focus on means and uses of economic concentration are just as relevant today as when Woodrow Wilson was in the White House.

Our political and regulatory system seems unable to address the “too big to fail” syndrome and the human abuses that can follow. Much of corporate America seems one big merger followed by another and meanwhile, Walmart, one of the biggest of the bigs, seems to be engulfed by a major foreign bribery scandal in Mexico, Rupert Murdoch’s vast media empire is now defending its political clout in Great Britain as Murdoch execs fend off criminal charges for violating privacy. Criminal charges have been leveled against a BP engineer involved in the Gulf oil spill. You could go on, but the situation is clear – too big to fail can also be too good to be true.

Idaho Sen. Frank Church – he served in the Senate from 1957-1981 – is remembered today primarily for his headline generating investigation of the Central Intelligence Agency in the 1970’s, but Church always considered another of his Senate investigations equally, if not more, important. As chairman of a subcommittee on multinational corporations in 1973, Church delved deeply into the practices, some of them corrupt, of some of the biggest, most powerful companies in the world.

Church’s work cast light on International Telephone & Telegraph’s involvement in the fall and murder of Chilean President Salvador Allende and Lockheed was exposed for its role in a bribery scandal in Japan. Lockheed’s CEO at the time admitted to spending millions on bribes to foreign officials and a Japanese prime minister went to jail in the resulting scandal. The entire chain of events led to passage of the Foreign Corrupt Practices Act in 1977, the U.S. law that Walmart may find itself on the wrong side of today.

Frank Church discovered in that long ago investigation that human nature, driven by an imperative to constantly expand and concentrate economic power has its dark side. In such a world corners get trimmed, ends justify means and we experience an Enron or we end up bailing out a financial institution that can only justify its continued existence because it’s too big to fail.

A thinking man’s conservative, New York Times columnist David Brooks, had a fascinating column this week in which, in a way, he came at this bigness issue from a novel angle. Brooks’ point was that a blind focus on destroying the competition – Brandeis might have termed it how businesses become always bigger – is the flip side of a lack of innovation. When the focus is on constantly and relentlessly growing, creativity goes begging. The need to be bigger inevitably trumps everything, including finding a better way to make a widget.

Brandeis argued a hundred years ago – his was the age of Standard Oil and the House of Morgan – that eventually bigness, that which “is attendant of excessive size,” is inefficient. Eventually, he wrote, “Decentralization will begin. The liberated smaller units will find no difficulty in financing their needs without bowing the knee to money lords. And a long step will have been taken toward attainment of the New Freedom [a reference to Wilson-era reforms in banking and business.]

It may well be in this age of globalization with a bank in Rhode Island tied to the fate of a housing development in Ireland that there is no going back from bigness, but there may be more than nostalgia in longing for a simpler, smaller time.

Frank Church, a liberal Democrat, helped expose the evils of bigness and concentrated power in the 1970’s, just as his role model in the Senate, William E. Borah, had done in the 1930’s. Borah, a Republican progressive, hated bigness, monopoly and concentration of power. He championed small business and decentralization and once said, “When you have destroyed small business, you have destroyed our towns and our country life, and you have guaranteed and made permanent the concentration of economic power, [which in turn ensures] the concentration of political power. Monopoly and bureaucracy are twin whelps from the same kennel.”

I don’t know about you, but I long for a political leader willing to call bluff on concentrated power. Bigger isn’t always better, it may just be bigger.

Baseball, Nebraska, Politics, Wall Street

Margin Call

Posted on November 28, 2011by christian

We Never Learn

One particularly chilling scene in the outstanding new film Margin Call takes place when the CEO of a big banking house, played with cool detachment by Jeremy Irons, recounts the cyclical nature of the financial markets. As he ticks off the years when markets have tanked, including 1929, he calmly suggests it is just the way things work in the rarefied world of high, high finance. The biggest, toughest, most ruthless survive, he says. It’s just the way the world works.

The movie, featuring a terrific cast including Kevin Spacey and Demi Moore, is an examination of one day in the life of a big Wall Street firm that finally must come to grips with its reckless speculation in the type of complicated financial instruments that even the big boss doesn’t understand. (In another great scene, the CEO interrupts a junior risk analyst to tell him that he doesn’t understand this esoteric, but widely profitable financial stuff, but to explain it so he can.)

In the end, the firm decides to unload its entire cache of toxic assets as fast as possible, settling for pennies on the dollar in order to save the firm and peddle, as Spacey’s character says, goods that they know are absolutely worthless. We are left to believe that the firm does survive, because as Irons’ character says at one point, there are three ways to make money in his business: be first, be smarter or cheat. He convinces himself that he is being first and smart – dumping the toxic investments before the markets wise up – but, of course, he is really cheating. We last see the self assured, but completely unself aware CEO lunching alone, enjoying undoubtedly an expensive bottle of wine, in the Executive Dining Room.

Lehman Brothers wasn’t so lucky. Writing in The New Yorker, film critic David Denby said Margin Call is the best film ever made about Wall Street. And Jake Bernstein, a reporter who won the Pulitzer Prize for exposing Wall Street practices that helped fuel the current economic mess, says the filmmaker J.C Chandor actually doesn’t tell as corrupt a story as played out in real life. Bernstein does note that the CEO character in the film is named Tuld. Lehman’s CEO was Dick Fuld, a man that TIME has suggested should be remembered as one to blame for the current mess.

Chandor is “mining deeper truths than the intricacies of credit default swaps,” Bernstein wrote in a review of the film. “The societal costs of high finance, the power of self-rationalization, and the easy embrace of personal corruption is his terrain.”

Margin Call gets high marks not only for the superb cast and believable script, but, as Bernstein suggests, for the larger points it makes, including that the people who work on Wall Street, at least most of them, are decent, striving, ambitious and incredibly competitive. All the stuff of success in business. What is missing is any sense of proportion; any real self reflection. These folks convince themselves that what they do and how they do it is necessary and that they are worth the million dollar bonuses that they are promised for deceiving their customers. This lack of self awareness is at the center of the film and at the heart of the continuing utilization of massive Wall Street salaries and bonuses derived from essentially creating nothing but a market for investment vehicles even the CEO’s don’t understand.

Also near the heart of the Wall Street-inspired economic crisis that is soon to extend into its fifth year are two elements that history has repeatedly shown are always at the core of a crisis of capitalism: vast money and vast inattention; inattention by both the financial players benefitting from the “system” and the sleepy regulators who always seem a day late. In the end unbelievable risk is tolerated long past the point of reason and ethics and personal values are corrupted because the money is so incredibly appealing. And, as one character in the film notes, the firm should be able to dump its steamy mass of worthless, well, investments because the “feds” won’t wake up until it’s too late to act. This level of inattention really is art imitating life.

The Hollywood press is abuzz with the notion that the Occupy movement will push Margin Call into serious Academy Award contention. Maybe. Hollywood is often as clueless about the real America as Wall Street, still as Denby wrote, “If Wall Street executives find themselves at a loss to understand what the protesters outside are getting at, they could do worse than watch this movie for a few clues. “

I came away from watching Margin Call thinking again that of the many, many tragedies in the current economic meltdown the one with potentially the most lasting consequence has been the abject failure of the current political class to explain what really happened, why it happened and to hold anyone accountable. Already what “reforms” were put in place in the wake of the Lehman collapse, the TARP bailout, etc. are having their hard edges sanded away. Gretchen Morgenson, another of the journalists who understands more about the ways of Wall Street than most members of Congress, reports, for example, that efforts to create greater transparency in the shadowy derivatives market are currently under attack in Washington. In other words, the people who helped bring about the current economic meltdown are resisting efforts to change their behavior. Self reflection works about as well on Wall Street as self policing.

“Wall Street,” Morgenson observes, “loves to do business in the shadows. Sunshine, after all, is bad for profits.” She quotes the great Wall Street investigator of the 1930’s, Ferdinand Pecora, as saying that then, as now, pitch darkness was the bankers’ stoutest ally.

Here is the real and lasting threat of the real life margin call we continjue to deal with every day: No real and comprehensive Congressional investigations have been done. No candidate for president – in either party – has offered a coherent explanation about what happened in 2008 and earlier. Americans across the specturm from the Tea Party to Occupy Wall Street are mad, and for some good reason, but not out of any comprehensive factual notion of what they should be mad about. Our political system has not, perhaps because of its own vested interest in the essential status quo, offered taxpayers and investors of the nation the explanation that is needed in order to try and correct a system that still presents tremendous risk to the national and world economy.

When members of Congress can speculate and personally benefit from insider information as CBS recently reported several members, including the House Speaker and Minority Leader, have there isn’t much Congressional incentive to crack down on the many, many abuses on Wall Street and in the financial markets.

So, we have once again set ourselves up to experience the obvious consequences of the cyclical nature of the way markets work. What goes up must come down. To the buyer beware. The markets self correct, even if there is a tad bit of economic dislocation associated with the correction. This hard time too will pass, as the Jeremy Irons character says in the movie, and we will go back to making money – by being first, being smarter or cheating. The old ways of money and inattention win again and always.

American Presidents, Baseball, Books, Football, Nebraska, Obama, Politics, Wall Street

Accountability

Posted on August 11, 2011by christian

On Wall Street and the NCAA

The nation’s political chattering classes have had plenty to chatter about over the last couple of weeks – debt ceilings, riots in London, The Gang of 12, Rick Perry, European sovereign debt, S&P credit ratings and whether Barack Obama can become relevant again.

Lyndon Johnson once reportedly switched off the television in the Oval Office after watching the revered and legendary CBS anchorman Walter Cronkite tell the country that the war in Vietnam was unwinnable. “Well,” LBJ said to no one in particular, “If I’ve lost Walter, I’ve lost the country.”

A voice of the inside the beltway progressives, the talented and occasionally snarky Maureen Dowd, isn’t Uncle Walter, but she writes like Obama may have lost her. What Dowd writes has a canary in the coal mine feel about it.

“Faced with a country keening for reassurance and reinvention, Obama seems at a loss,” Dowd wrote this week in the New York Times. “Regarding his political skills, he turns out to be the odd case of a pragmatist who can’t learn from his mistakes and adapt.

“Many of his Democratic supporters [in Iowa], who once waited hours in line just to catch a glimpse of The One, are disillusioned.”

Emory University psychologist Drew Westen, a sometimes “message guru” for Democrats, offered an even more scathing critique of the President’s failures in a highly commented upon Times Op-Ed piece on August 7.

Rather than name names and hold accountable those responsible for the continuing economic mess, Westen said, Obama has utterly failed to address the fundamental need for a president – any president – to be the national narrative setter; to tell a story about what’s gone wrong, how it can be fixed and how the bad guys responsible will be held to account.

In contrast, for example, with Franklin Roosevelt’s full throated condemnation of Wall Street and greedy business leaders as the villains of the original Great Depression, Westen say Obama punted from the first day of his administration. Said Westen, “When faced with the greatest economic crisis, the greatest levels of economic inequality, and the greatest levels of corporate influence on politics since the Depression, Barack Obama stared into the eyes of history and chose to avert his gaze.”

Obama, Westen said, can’t bring himself to assemble the suspects in a political line-up and identify the bad guy(s).

He’s got a point. With this morning’s headlines comparing the economic roller coaster ride of the last few days to the awful days in the fall of 2008, I’m hard pressed to think of anyone in a position of authority and power who has been held accountable for the jobs lost, the mortgages foreclosed and the lives uprooted.

Standard & Poors, by all accounts, totally missed the risks of the subprime mortgage meltdown in the last decade when it should have been front and center judging and publicly reporting such risks to the economy. Now S&P’s nameless suits downgrade sovereign debt in high-minded tones, while appearing on the Sunday talk shows lecturing Washington’s leaders on political responsibility. The ratings agency, meanwhile, lobbies Congress not to require that it report “significant errors” in its own performance.

Tim Geithner, the Treasury Secretary, who was at the New York Fed when the economy’s foundation began to crumble, apparently wants to leave his job as more folks call for his head, but Obama has begged him to stay. George W. in back on the ranch and the big Wall Street banks roll on, while the Congress systematically weakens the Dodd-Frank legislation and prevents the appointment of a tough consumer advocate.

Accountability is obviously on an extended summer vacation in the Hamptons.

Contrast the macro-world’s lack of accountability on the economy and little things like jobs and mortgages with the penalties for screwing up in college athletics. Boise State University’s long-time athletic director was fired yesterday by the school’s president in advance of the anticipated sanctions that will be leveled against the school for a variety of infractions involving college sports.

Some boosters immediately questioned the decision to fire a 30-year employee and there will be the predictable second guessing of Boise State President Bob Kustra. But as more of the story comes out, give the one-time politician turned college president this much: the new to the big-time Bronco athletic program is facing its first real big-time challenge with the anticipated NCAA sanctions and Kustra’s personnel action just set the standard for compliance at BSU for the foreseeable future. Good, bad or indifferent that is accountability.

The Ohio State University arguably took too long to fire its slippery football coach, but it happened. It’s now reported the school has paid just south of a million bucks to unravel what went wrong with the Ohio State football program.

In a perfect world there are no mistakes. No one needs to stand and take responsibility and be held accountable. But there is a real world out there that is messy and requires accountability. Particularly in a representative democracy, beset with deep economic, social and political problems, accountability has never been more required.

The British poet, essayist, humorist, and much more Dr. Samuel Johnson famously said “When a man knows he is to be hanged…it concentrates his mind wonderfully.” He might also have said it concentrates the mind of those who observe the hanging.

Accountability is not about grudges or getting even and it’s certainly not about shifting the blame. It is about understanding what when wrong and who was responsible, all in the interest of corrective action.

Dr. Johnson also wisely said “hell is paved with good intentions,” which is another way of saying good intentions don’t mend a broken economy or straighten out college athletics. Accountability isn’t the whole answer, but it is a pretty good start.