December 26, 2010

Thieves’ Paradise

We should not kid ourselves that the foxes aren't still ruling the chicken pen.  We have learned nothing and the rulers of the universe are gleeful.

While these pieces relate to America, our local banks are made of the same stuff, with the added teflon coating of a rudely robust economy and pathetically acquiescent  Australian government and Australian populace.
Among the unfortunate legacies of the financial crisis of 2008 is a tendency among commentators to soft-pedal the outrage over what happened. In too many accounts, blame is considered impossible to assign given the complexities of modern-day finance. Those inclined to point fingers at Wall Street or Washington are frequently derided as innocents who do not grasp how the world really works.

The result is an apologia that goes something like this: Mistakes were made, despite the best intentions of financial professionals. Bankers lent too much money to poor people who never should have bought homes. Models used to measure risk broke down, and regulators were swamped. All of this was a shame, but accidents are a part of life, and an unavoidable part of the swashbuckling style of capitalism that has enriched Americans for generations.

Nonsense, Matt Taibbi says. In “Griftopia,” a relentlessly disturbing, penetrating exploration of the root causes of the trauma that upended economic security in millions of American homes, Taibbi argues that what unfolded was far from accidental. Rather, the nation suffered the equivalent of a hostile takeover of key areas of its commercial life by investment banking houses, while regulators and members of Congress abdicated their responsibilities either because they were influenced by campaign cash or because they believed the fairy tale that unsupervised markets always work best. The result, Taibbi asserts, was a thieves’ paradise — Griftopia.
 And nothing has changed:
The villains of the last crisis, he observes, are the same people now tasked with preventing the next one.“We live in an economy that is immensely complex, and we are completely at the mercy of the small group of people who understand it — who incidentally often happen to be the same people who built these wildly complex economic systems,” he writes. “We have to trust these people to do the right thing, but we can’t, because, well, they’re scum. Which is kind of a big problem, when you think about it.”
Meanwhile, the derivatives market, born of a legitimate and transparent means by which farmers could protect their future earnings, and only later appropriated by the financial markets for more odious (and hugely profitable - and costly to the rest of us) reasons, remains firmly in the grips of the big American banks, and continues to operate behind opaque curtains.  The smoke and mirrors financial market remains in tact, unbowed.
The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available. 

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small ...

One former regulator warned against deferring to the banks. Theo Lubke, who until this fall oversaw the derivatives reforms at the Federal Reserve Bank of New York, said banks do not always think of the market as a whole as they help write rules. 

“Fundamentally, the banks are not good at self-regulation,” Mr. Lubke said in a panel last March at Columbia University. “That’s not their expertise, that’s not their primary interest.” 
No shit Sherlock.  But then again, stating the obvious over and over and over again is proving to be fruitless. 

Book review - Giftopia - Matt Taibbi

Secretive banking elite rules derivatives


  1. Anonymous9:38 PM

    July 2008:

    The Bank of International Settlements, which seems to be the only institution that tracks the derivatives market, has recently reported that global outstanding derivatives have reached 1.14 quadrillion dollars: $548 Trillion in listed credit derivatives plus $596 trillion in notional/OTC derivatives.

    Current world GDP is circa 60 trillion only.

    Current world population is 6.894 billion.

    Derivative exposure per capita = $165,941 at the very least - probably by now a lot more.

    The punters are fucked - less than one in a million has any idea whatsover how this fraudant fairy story works - which is exactly what the greedy bastards want.

    If one wants to explain how the global financial services industry works then one only has to reflect on that Pura Milk advert - you know the one where the guy fronts up at a shop and asks the old frump behind the counter for a bottle milk.

    The customer has no idea what type of milk he wants.

    The frump then lets lose with a barrage of choice - the customer, overwhelmed, surrenders his choice and allows the seller to choose for him.

    Smart Choice? No, dumb customer.

    Governments, councils, pension funds etc. have to make investment choices from a menu of intentionally designed products that are far too complex for the greater majority of investors to comprehend.

    Too often choice has not been created as a convenience - rather, to confuse, a tactic to encourage dumb customers to surrender their decision making to someone who speaks with authority, ie trained (unethical) sales people working for the greedy bastards who are milking us dry.


  2. Love your summation of the real message of the Pura Milk advert Justin, most astute.

    And yes, we are being milked dry.

    The figures you quote are frightening, beyond belief.