Sunday, August 8, 2010

A Nation Subsisting On An Elaborate Check-Bouncing Scheme

Matt Taibbi in Rolling Stone:

During an other-wise deathly boring year spent covering this debate, I learned to derive some entertainment from watching politicians scramble to give floor speeches about financial reform without disclosing the fact that they didn't have the first fucking clue what a credit-default swap is, or how a derivative works. This was certainly true of Democrats, but the Republicans were way, way better at it. Their strategy was brilliant in its simplicity: Don't even bother trying to figure out the math-y stuff, and instead just blame the entire crisis on government efforts to make homeowners of lazy black people. "Private enterprise mixed with social engineering" was how Sen. Richard Shelby of Alabama put it, with a straight face, not long before the bill passed.

The argument favored by Wall Street lobbyists and Obama's team of triangulating pro-business Democrats was more subtle. In this strangely metaphysical version of recent history, the economy was ­ruined by bad luck and a few bad actors, not by any particular law or policy. It was the "guns don't kill people, people kill people" argument expanded to cover global financial fraud. "There is an assumption that math is evil," insisted Keith Hennessey, a member of the Financial Crisis Inquiry Commission, at a hearing in June. "Credit-default swaps are things, and things can't be culprits."

Both of these takes were engineered to avoid an uncomfortable political truth: The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over. It was pure ­financial alchemy – turning ­manure into gold, then spinning it Rumpelstiltskin-style into vast profits using complex, mostly unregulated new instruments that almost no one outside of a few experts in the field really understood. With the government borrowing mountains of Chinese and Saudi cash to fight two crazy wars, and the domestic manufacturing base mostly vanished overseas, this massive fraud for all intents and purposes was the American economy in the 2000s; we were a nation subsisting on an elaborate check-­bouncing scheme.

And it was all made possible by two major deregulatory moves from the Clinton era: the Gramm-Leach-Bliley Act of 1999, which allowed investment banks, insurance companies and commercial banks to merge, and the Commodity Futures Modernization Act of 2000, which ­exempted the entire derivatives market from federal regulation. Together, these two laws transformed Wall Street into a giant casino, allowing commercial banks to act like high-risk hedge funds, with a whole new galaxy of derivative bets to lay action on. In fact, the laws made Wall Street even crazier than a casino, because in a casino you have to put up actual money to make bets. But thanks to deregulation, financial companies like AIG could bet billions, if not trillions, without having any money at all to back up their gambles.

Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws – commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark – were reversed. The story of how the last real shot at reining in Wall Street got routed tells you everything you need to know about how, and on whose behalf, our government works. It was Congress at its most cowardly, deceptive best, with both parties teaming up to subject reform to death by a thousand paper cuts – with the worst cuts coming, literally, in the final moments before the bill's passage.

Sigh.

And of course Obama or whichever ed deform asshole in power at the next meltdown will somehow blame the public school system when this all blows up again.

You know the jive - kids don't have the skills, need more college degrees, if we don't do something about teachers unions soon Sri Lanka will be ahead of us, yada, yada, yada...

Bob Herbert wrote this sort of drivel in his latest Times column (no link - if you want to subject yourself to Herbert, go find it yourself.)

Never mind that NONE of the current economic problems the country faces has to do with the public education system.

NOT ONE.

The problem is EXACTLY as Taibbi lays it out:

Control over the economy in the past dec­ade was ceded to a small group of rapacious criminals who to this day are engaged in a mind-­numbing campaign of theft on a global scale

And those same rapacious criminals have bought the politicians in both parties or themselves have bought political positions (e.g., Bloomberg) and so nothing gets done anymore that does not keep the banksters in power and flush with cash.

It's a shame assholes like Bob Herbert are either too stupid or too corrupt to see through the jive and tell the truth.

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