Democrats & Liberals Archives

Financial Tables are Turned

Financial executives had it made: Whether their fancy trading brought profits or not, they got their fat bonuses. Even after they busted the entire economy and killed off millions of jobs and were then bailed out by taxpayers, they still grabbed billions in bonuses. These greedy geniuses are now being stopped by the Obama Administration.

In these terrible economic times, the word "chutzpah" is being bandied about by everybody - and for good reason. How is it possible for a billionnaire-rich financial guy to have the nerve - "chutzpah" - to take a gift from a homeless taxpayer and waste it on baubles for himself? Although the country is deep in debt, we gave these masters of the economy money in order to prevent their companies from failing; the idea was that they would make loans to get the economy moving. So what do these greedy fools do? They take the money for themselves!

To the word "chutzpah" we must add "gonif" (thief).

After much screaming and yelling by all of us, the Obama Administration is finally acting to reduce the compensation of greedy executives in the financial industry:

The Obama administration plans to announce -- as early as today -- new 90% pay cuts for 175 Wall Street executives at the seven firms bailed out by the government amid the economy's collapse earlier this year.

Some of the executive compensation may be in stock, but the executives may need to wait 2 or more years before they may redeem the stock.

This is good. This is great. This is long overdue. Why should people who spend their time gambling - this is how Goldman Sachs and the other "too-big-to-fail" financial outfits get most of their money - be rewarded more than anyone else? If they would offer loans to businesses, they would do something useful. If they would offer loans for people to buy homes, they would be doing something useful. But NOBODY benefits from the incomprehensible "paper" they deal in. Nobody but Wall Street gamblers themselves. And only because taxpayers guarantee these gamblers can't fail.

Up to now we have been suckers, kowtowing to the so-called financial wizards, kowtowing to the tune of hundred-million-dollar packages. No more. These are wizards no more. They brought ruin to the country. They are now fools. They will now begin the path down to lower compensation.

Not just lower compensation but lesser importance. Les Leopold expresses it well:

In the movie, "The Incredible Shrinking Man" (1957), the protagonist (played by Grant Williams) sails through a sparkly, radioactive mist which slowly shrinks him down until he's about an inch tall, having to fend off spiders with a straight pin as sword. Obama wants to supply similar pixy dust to the financial sector. As he put it, "Wall Street will remain a big, important part of our economy, just as it was in the '70s and the '80s. It just won't be half of our economy....We don't want every single college grad with mathematical aptitude to become a derivatives trader."

Indeed, we need mathematical experts to work on important projects that build our economy - developing a thriving "green" industry, for instance. Let's compensate people according to their contributions to the economy. Let's rebuild the American meritocracy.

Obama has turned the tables on greedy financial executives. It's up to the rest of us now to follow through and reward people according to the value of their contributions to society.

Posted by Paul Siegel at October 23, 2009 3:12 PM
Comments
Comment #289655

Paul Siegel wrote;

“Let’s compensate people according to their contributions to the economy. Let’s rebuild the American meritocracy. It’s up to the rest of us now to follow through and reward people according to the value of their contributions to society.”

That could have been taken directly out of the Communist Manifesto. Where else could one find such ideas…certainly not in our Constitution or in any papers written by our founders.

I am glad some folks are showing their true intentions and motives. Perhaps in a few short years liberals can be bold enough to organize their own communist or socialist party to run against the R’s and D’s.

Posted by: Royal Flush at October 23, 2009 5:07 PM
Comment #289656

Lets give them All the Money AND all the power then maybe the rest of the 99% of us can get a little.

Posted by: Jeff at October 23, 2009 5:13 PM
Comment #289658

The unintended consequence is that top talent leaves the companies which drives down the stock price which hurts workers who have money in 401k’s.

Sometimes with simple approaches like Paul’s we tend to hurt the people we are trying to help.

It is better to give someone an opportunity. Pay them in stock instead of salary. I think that is what they are currently thinking.

Posted by: Craig Holmes at October 23, 2009 5:20 PM
Comment #289662

but forcing these greedy baboons to act human is socialism. Muslim, nazi socialism!

Posted by: Mike Falino at October 23, 2009 5:41 PM
Comment #289666

Why is it we put bank robbers in jail again? I thought if someone gets away with robbery, they’ve “earned” it. I mean they had to sweat it out, take a risk, right? Where has all the entreprenuerial spirit gone? I mean justice and reasonable compensation is the same as Stalin’s Communism, right?

I dunno somebody once said something about moral hazards on this website…naaaaw.

Posted by: gergle at October 23, 2009 6:41 PM
Comment #289672

Where this article isn’t incredibly simplistic, it’s just wrong.

This is good. This is great. This is long overdue. Why should people who spend their time gambling - this is how Goldman Sachs and the other “too-big-to-fail” financial outfits get most of their money - be rewarded more than anyone else?

For one thing, Goldman Sachs isn’t even subject to this. If anything, they stand to benefit from it because they can start hiring away top talent from the firms subjected to this.

Apart from that, firms which accepted bailout money are hardly “gambling.” It’s the government that is gambling with taxpayer money by propping up failed institutions.

From a free-market point of view, this isn’t necessarily a bad measure at all. In the future, executives will think long and hard before putting their companies on the public dole, which is how it should be.

Posted by: Paul at October 23, 2009 10:02 PM
Comment #289676

In recent threads I’ve noticed terms like ‘Marxists’ are being tossed out there as perjoratives. The terms are being misused to prevent thoughtful discussion; they are shorthand insults, substitutes for thoughtfulness.

First, Karl Marx was a great philosopher. The philosophies of the Free Market and Chicago School of Economics would not even be possible without Marx, because broke through with a critical realization: the history of humanity could be understood as an economic history.

In addition, Marx realized the history of humanity is the history of class struggle. Again, this is a critical perception in the development of economics. It colors virtually every discussion we have about the economy, whether we realize it or not, and this holds true for socialists and Free Market proponents, for Krugman and Greenspan and Stigletz and Barnanke alike.

The term ‘communist’ is useless for discussion. It is another example of insult substituting for thoughtful discussion and analysis. Now, occasionally I like throwing a verbal hand grenade as much as anyone else, or being provocative or snarky or whatever, but the point is this- use terms that apply.

Posted by: phx8 at October 24, 2009 12:47 AM
Comment #289680

Now there’s a thought…”use terms that apply”…hmmm…does that mean I should no longer refer to Bible thumping, bark shooting, Southern conservatives as knuckle draggers? Damn the luck!

Posted by: Marysdude at October 24, 2009 5:38 AM
Comment #289683

Paul
Pretty good. Right off the bat you got called a commie.Must be a good post.
BHO and just about every other industrial country is moving to reign in the obscene compensation for financial chiefs for good reason. Its not the amount so much as the risk taking that automatically follows. All they need to do to become fantasticly wealthy is to keep all the balls in the air long enough to receive a year or twos bonus. Long term planning goes out the window. This cannot be allowed to continue.Too many people get hurt and these cries of socialism and government wage control are just silly,myopic fear mongering.
Paul Krugman writes about once again making banking a boring business. From the depression until the Reagan epoch there were strict banking regulations in place. Banks mostly made money by taking deposits and lending them out to worthy borrowers at reasonable interest rates. Bankers made about as much as industry CEOs, but banking was boring. It was not the province of risk takers or charletons.Not only does executive pay need to be regulated, a host of other regulation,or re-regulation, needs to be imposed. Yes banking will be boring. It is of note that during that period the American standard of living DOUBLED in one generation. Not to shabby for a boring banking regime.

Posted by: bills at October 24, 2009 8:05 AM
Comment #289691

RF states “That could have been taken directly out of the Communist Manifesto. Where else could one find such ideas…certainly not in our Constitution or in any papers written by our founders.”

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” Thomas Jefferson

“I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” Thomas Jefferson, 1812 Source:Liberty Quotes

“All the property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.” Benjamin Franklin (1706-1790) Founding Father
letter to Robert Morris, 25 December 1783, Ref: Franklin Collected Works, Lemay, ed., 1082

Posted by: j2t2 at October 24, 2009 10:47 AM
Comment #289699

It’s nice to see that someone finally sees the legalized extortion that these bankers have been guilty of over the past twenty years and feels it needs to be reigned in. I particularly like the post with the quotes from our founding fathers. Seems they knew this could happen and didn’t like it then. We should like it now? HA. Conservatives have never held themselve or their elected officais accountable, now because the other party that is in power is tired of hearing that we’ll vote them out just as quick wants to do something, they should be labled commies or socialists. More BS from the right more talking points to spread fear. It’s been a jobless recovery have any of you on the right done anything to bring jobs back to this country from foriegn shores? Can you say you’re doing all you can to help? Or are you happy with your brand of terrorism.

Posted by: Victor R Romano at October 24, 2009 1:17 PM
Comment #289709

j2t2 in his post of the letter by Franklin left out the first paragraph which provides the context in which Franklin was writing. Franklin wrote;

“The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People’s Money out of their Pockets, tho’ only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors’ Money, and no longer the Money of the People, who, if they withold it, should be compell’d to pay by some Law.”

When read in its entire context one can draw a wholly different conclusion. Legal obligations of the government are the obligations of the individual people, and as such, should be paid. It is a stretch to imagine that Franklin would agree that money or assets not legally owed by the people on behalf of the government should be taken from them.

Posted by: Royal Flush at October 24, 2009 6:40 PM
Comment #289710

j2t2 was responding to my comments on this statement written by Paul Siegel;

““Let’s compensate people according to their contributions to the economy. Let’s rebuild the American meritocracy. It’s up to the rest of us now to follow through and reward people according to the value of their contributions to society.”

j2t2 then takes my response which called this a Communist Manifesto and responded with remarks by Jefferson concerning banks and corporations acting like aristocracy.

I fail to see the connection. Perhaps j2t2 can enlighten me.

To paraphrase Marx…to each according to their needs, from each according to their ability…now reads, in the liberals mind, compensate according to their contribution to the economy.

It makes one wonder how the artist, writer, philosopher, or stay-at-home mom would be compensated. How will the stars of Hollywood survive if paid by this formula? Do politicians actually “contribute” to the economy? How will the frail and elderly receive their stipend? Who will compensate the lazy? Will our welfare roles be eliminated? Just a little food for thought about living in this “just” world j2t2 would have us ascribe to.

Posted by: Royal Flush at October 24, 2009 7:01 PM
Comment #289714

Royal Flush,

It makes one wonder how the artist, writer, philosopher, or stay-at-home mom would be compensated. How will the stars of Hollywood survive if paid by this formula? Do politicians actually “contribute” to the economy? How will the frail and elderly receive their stipend? Who will compensate the lazy? Will our welfare roles be eliminated? Just a little food for thought about living in this “just” world j2t2 would have us ascribe to.

Marx would say that these people should be paid according to their needs without regard to their ability to produce. Paul’s statement is in direct conflict with Marx. As you point out, a true meritocracy would hamper lots of people who work in fields that do not directly “contribute” to the economy.

I find it ironic that you have zoned in on the one statement from Paul advocating for the implementation of a capitalist ideal presently absent in our economy as Marxist. I think you just got a little mixed up with Marx’s quote, you must have accidentally reversed the words in your mind and thought it was “to each according to his ability” rather than “from each according to his ability, from each according to his need”

Posted by: Warped Reality at October 24, 2009 11:30 PM
Comment #289719

The quote:

From
each according to his abilities, to
each according to his needs.”

Posted by: Marysdude at October 25, 2009 6:44 AM
Comment #289720

Marx also said:

“Democracy is the road to socialism.”

and:

“I am not a Marxist.”

Marx was actually pretty wise and very good at economic philosophy…it took Engels and Lenin to screw it up.

Posted by: Marysdude at October 25, 2009 6:50 AM
Comment #289721

Marx was brilliant for his time. If you haven’t read his literature I suggest you should. Same with wealth of nations. An interesting thing to point out when many people like to think about Adam Smith is that he was not a free marketer nor a Marxist. He was in between, while the people he talked to and called his best friends were mostly Marxists.

Any it’s not to say that Marx had it all right, there are some things that weren’t completely right with reality, but that is the case whenever you talk about economic models. I can make a wager that if you asked people if they wanted to be paid fairly for their contribution into a work they wouldn’t mind at all, and in fact support it over the current system, having one person decide how much you are worth.

Posted by: kudos at October 25, 2009 7:24 AM
Comment #289722

The way most large businesses adjudicate pay and benefits is to compile information on what other companies in the area are paying for like work and skills, then base their own pay system on the average. If that is not socialism, what is it?

Posted by: Marysdude at October 25, 2009 9:03 AM
Comment #289723

Here’s a quote by Marysdude:

“The ‘free market’ was a fantasy within a dream once dreamed by someone who had had too much to drink.”

Free Market is a myth…there is none, and has never been one.

Hmmm…come to think of it, the second line is also a quote by Marysdude…

Posted by: Marysdude at October 25, 2009 9:09 AM
Comment #289744

The free market exists at the race track and in Vegas, but people still don’t always believe that everyone is honest.

Posted by: ohrealy at October 25, 2009 2:33 PM
Comment #289748

And that’s a ‘ohrealy’ quote…see, we can do as good as Jefferson and Marx :~)

Posted by: Marysdude at October 25, 2009 3:38 PM
Comment #289754

Quotes from Marx:

Who are you going to believe, me or your own eyes?

He may look like an idiot and talk like an idiot but don’t let that fool you. He really is an idiot.

Quote me as saying I was mis-quoted.

I made a killing on Wall Street a few years ago…I shot my broker.

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.

The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.

There’s one way to find out if a man is honest - ask him. If he says, “Yes,” you know he is a crook.

Posted by: ohrealy at October 25, 2009 5:27 PM
Comment #289757

beretta9,

The problem is that people who dislike ‘capitalism’ are actually against ‘corporatism’, but can’t bring themselves to understand the difference and accept the part the state plays in fostering the conditions that they argue against…

And because of that, the echo chamber keeps on reverberating and allowing their masters to keep pushing their agenda even as it fosters the very condition that they want to fight.

Posted by: Rhinehold at October 25, 2009 10:58 PM
Comment #289760

It’s called ‘lock-step’, and those on the right have been so tightly behind Beck/Limbaugh for so long they blame the left for being behind a master and pushing his agenda…go figure…it’s kinda like blaming Obama for the deficit, when his additions have been so minimal, yet will probably bring us out of the quagmire…go figure again…

It may not be because someone hears the same things over and over that they become disenchanted with this site, it may be because they are getting tired of entering the same ‘talking points’ over and over and over and over and over…and over…we got into this mess because the system failed, if we correct the system be freeing up the corrupters we’ll never get out of the hole we are in. Y’all talk of the government as if it is the only problem, but fail to see that the government could hardly have been the cause of the failures in the first place. Capitalism, as we know it, and have attempted to practice it over the years began failing in the nineteenth century and without ‘government’ we’d have been dissolved as a nation long ago. The market only corrects small deviations, but it causes big ones that it can’t be trusted to adjust. Read your history…people cannot thrive by trusting the free market (Free Market creates slavery, indentured servitude, sweatshops, child labor, disease ridden living areas, unsafe work places…the list goes on and on). It is when they trust the free market that they begin to decline. We’ve discovered the same thing over and over, but some just don’t seem to get it. As bad as government is, it is the only oversight available to the common man (you know the one…the one who merely want s to work hard and provide for his family).

Posted by: Marysdude at October 26, 2009 7:05 AM
Comment #289763

RH
Your first paragraph is interesting. What many cannot get over is that the corporation,including banks,are NOT natural phenomena in human society,like the nuclear family or tribe.They are in fact,government constructs. The highly corrupt court decisions that have magically endowed them with many of the inherent human rights that Jefferson thanked our Creator for will continue to damage us until they are reversed. The only power capable of doing so is the same government,like it or not, that created both corporations and gave them exraordinary leeways in the first place.

Posted by: bills at October 26, 2009 8:34 AM
Comment #289769

tax breaks for corporations. no taxes for corporations. you want to know where that has left the rest of america? bankrupt.

we have given the rich their breaks, and the left empty buildings, boarded up complexes. we have taxed the middle to make up for the corporate welfare, and have found you can only tax so much, the businesses do need to be taxed too. but when that bill came due they left the country. a safe clean country they left to decay for profits. the american ppl gave and gave, and ended up in the unemployment line. they trusted if we just don’t tax them, they will stay. they didn’t. oh, if we lighten regulations, relieve their tax burden they will provide hard working americans w/good jobs. didn’t last.

where are the corporations that love america? that love the ppl enough to pay a liveable wage? it brings me back to 2005. bush changed the manufacturing clause in census data to include restaurant workers as manufacturing jobs. he knew in 2005 what was happening, and skewed the numbers to reflect otherwise. he knew in 2005 what was going to happen to america. and instead of finding a way to correct, or solve the problems, he adjusted census data.

read the above very carefully. it makes me sick. and it should anger even the deepest repub. he knew, and did nothing.

and my favorite jefferson is george. :)~

**and w/the 2006 elections, hamburger makers are no longer considered manufacturing**

Posted by: bluebuss at October 26, 2009 11:21 AM
Comment #289774


“The unintended consequences is that top talent leaves the companies which drives down the stock price which hurts workers who have money in 401K’s.”

Finally, some one mentions the true culprits in all of this. The enablers who put profits before all else.

I wonder how many of those 401Kers who lost their jobs invested in companies who closed down factories and moved the jobs to China or brought in cheap illegal labor.

Posted by: jlw at October 26, 2009 1:22 PM
Comment #289781

I like the way the term, ‘top talent’ is bandied about. It is as if it wasn’t the ‘top talent’ that brought us down. Every coach should know when he should send in the second team.

Posted by: Marysdude at October 26, 2009 2:39 PM
Comment #289786

jlw, if those who created this financial sector meltdown are what you call top talent, I say get rid of top talent and bring in the top educated from our universities with some, but less experience in the industry.

The greed quotient is going to be diminished, and that top talent you refer to has amply demonstrated they want no part of it. Good riddance. They knew the risk they were running in participating in the kind of 40 to 1 leveraging they engaged in, and they ran with it thinking WRONGLY that it would pay big. Such gamblers with other’s money must be restricted to Casinos and investment banks, NOT depository institutions or any financial organizations backed by tax payer insurance like the FDIC.

Which is why these monoliths must be dismembered into separate corporate entities representing their discrete lines of business, like depository lending, insurance, investment banking, and securities backed trading companies. No more conglomerate lines of business. Let’s move on. This lesson has been learned TWICE now at the public’s expense, in 1929 and 2008, both precipitated by Republican governance which failed to oversee and regulate even as the dark clouds gathered. Let’s move on like we learned something from this, not idjuts.

Posted by: David R. Remer at October 26, 2009 4:07 PM
Comment #289811

“j2t2 then takes my response which called this a Communist Manifesto and responded with remarks by Jefferson concerning banks and corporations acting like aristocracy.I fail to see the connection. Perhaps j2t2 can enlighten me.”

RF In a nutshell, The problem taxpayers have is with the corporations borrowing huge sums of money to get themselves out of the financial crisis they have put themselves and our country into. These corporations instead of repaying TARP funds and maintaining a larger cash reserve have decided to reward individuals working at and for these large banking institutions with large sums of money. As a shareholder our government has demanded good business practices be implemented by these companies instead of using the money to reward some individuals in the corporation.

You evidently have chosen to make this a case of the government interfering with salaries of individuals that work at the company, I don’t believe that to be the case. It is the corporation’s blatant display of the same bad business practices that got them into the mess to begin with that is the subject of both taxpayer and administration wrath.
The quotes by Jefferson are IMHO valid as we have allowed these corporations to become to big to fail and are now suffering the consequences for doing so.

Posted by: j2t2 at October 26, 2009 9:33 PM
Comment #289847

j2t2 writes; “The problem taxpayers have is with the corporations borrowing huge sums of money to get themselves out of the financial crisis they have put themselves and our country into. These corporations instead of repaying TARP funds and maintaining a larger cash reserve have decided to reward individuals working at and for these large banking institutions with large sums of money.”

While j2t2 and others may be surprised at what these corporations are doing, I am not. Below is my response to Mr. Daugherty regarding government bailouts which I posted on a different thread.

Government rushed into bailouts with no measured plan and no reasonable expectation of the results. The attitude of government was to just throw money at a problem. That is thoughtless and usually doesn’t work very well. A class of high schoolers could have done as much.

Would we have been better off without government intervention? No one knows for certain, but I believe the answer is yes. Many of the companies that I hear the left complain about nearly every day were rescued from failure by government intervention. Many of the reason for the bailout would have been eliminated if left alone. The very vices denounced by Mr. Daugherty when he wrote;

“A free market where most companies improve their profits by dishonest accounting, dangerously risky derivatives trading, and cheating customers doesn’t have the right kind of competition at work.”

would have been eliminated. Now, since the government rescue it’s a return to business as usual. We’re just treading water until the next big scandal because the market wasn’t allowed to work. This “too big to fail” mentality is abhorrent to me. Is Government Motors now to big to fail? Is government banking now to big to fail? Will government health care become to big to fail? Such an attitude merely guarantees continuance of the very things that Mr. Daugherty claims he despises.

Posted by: Royal Flush at October 27, 2009 11:32 AM
Comment #289854


David, even an idjut should know that when something is enclosed in quotation marks, it was said by someone else. In this case the statement was made by Craig Holmes and jlw thinks that much of the top talent should be in prison along with Rubin, Greenspan, Summers and others.

Posted by: jlw at October 27, 2009 12:38 PM
Comment #289856


David,R., sooner or later you are going to have to get your facts straight on deregulation.

While it is true that Gramm, Leach and Bliley were great advocates of deregulation and wrote a major piece of deregulation legislation, The kings of deregulation were Greenspan, Rubin and Summers. The facts speak for themselves.

I have no use for Republican conservative philosophy, I think the world has outgrown it.

Greenspan, Rubin and Summers bought into that conservative philosophy. All three promoted the idea that the market knows best, that it would self-regulate. They went to great lengths to insure that there would be no regulation of the otc derivitives which were deregulated by these people early in the Clinton Administration. All three testified before Congress, saying that any attempt to regulate the otc trades would result in the collapse of the U.S. economy. All three were raking in millions in profits off of the OTC derivitives.

Congress, acting on behalf of their primary sources of lobbying money, the financial institutions, killed any attempt to regulate the otc’s.

Within three weeks of those statements and actions, the Clinton economic team along with Greenspan were forcing the banks to poney up $400 billion each to save the major derivitives hedge fund from collapse. After that near miss, the entire house of cards was allowed to continue unabated for another decade before it finally collapsed.

The American people are now living with the aftermass of the greed displayed by The Clinton Administration, Greenspan and the regulators, the Bush Administration and most Republicans and Democrats.

Posted by: jlw at October 27, 2009 1:30 PM
Comment #289862

jlw is right in a way…the finance houses had been skating on thin ice for a long time. All GLB did was make that part of it legal.

Throwing dice in a game of craps is gambling…placing bets on the spin of a wheel is gambling…trading is stocks on a company’s future earnings is gambling…trying to figure out how much pork bellies or crude oil will be going for in six months is gambling…but, trading in the unvalued atmosphere of the derivatives trade and in the bundles of floating mortgages is so far above gambling as to not be mentioned in the same breath. That is what GLB did…encouraged that kind of holistic enterprise.

Posted by: Marysdude at October 27, 2009 3:00 PM
Comment #289901

SO RF it appears you have been enlightened and the Jefferson quotes do apply to your earlier request. Now the question is why would you then blame government intervention when the problem is corporate greed. Why is it conservatives give corporations a free pass when the founding fathers have warned us against corporations early on.

Posted by: j2t2 at October 27, 2009 8:32 PM
Comment #289940

The old Robber Barons, before the Robber Barons of the 1800’s, and the Roaring Twenties, were folks who would set up castles on the main rivers of commerce, and prevent folks from moving down the river until they had paid the toll. In this way, these Robber Barons, for their own benefit, stifled economic growth and trade for Europe.

There are always methods of making money that involve taking advantage others, deceiving other, playing unnecessary and unwanted middleman to others, driving up the costs and the inefficiencies of systems in such a way that others have to pay you to get their desired efficiency.

We have created a regulatory environment that encourages this.

We need to encourage something else, and discourage a lot of the horsecrap that’s been going on.

I believe people confuse natural and emergent with good and right. Just because a system is left alone doesn’t mean that it’s results will be morally or practically efficient. Just because a system’s behavior is emergent doesn’t mean its a system we want to keep going. After all, ants invading your house and getting into your food is an example of natural and emergent behavior, but if it happened to you, you’d want to call the exterminator, naturalness and emergence be damned!

While it’s a good idea to shape laws and regulations with the fact of emergent systems in mind, we also have to keep in mind what we want out of that system. True efficiency follows the purpose of a system.

A system where the trains all run on time is efficient in that regard, but if few people are riding at those times, or few people can afford to ride the system, which is intended to provide a public transportation alternative to drive down costs for people, then it’s not efficient in the ways that count.

We cannot construct policy from theory and logic alone. We must test that theory and logic by the reality to which it must be applied.

The Republicans free market logic is certainly seductive and compelling. It certainly scares us to think what innovation or incentives we might get in the way of, with government action. But if we look at what happened with our markets over the last few years, we’ll find that much effort and resources went into cheating and conning the investors and the other segments of the economy.

The market, by itself, encourages profit-seeking. The supporters of free market literalism, that is the notion that the free the market the better, allege that most of the time, the market will correct against those who are deceptive, shoddy, unreliable, or excessively risky in their work. But what we saw instead was that people were smart enough to out smart most of the folks running the market, and therefore the market itself. The market had to correct its ignorance, often long after the fact, long after the consequences had compounded disastrously, in order to return to some kind of equilibrium.

In other words, the market failed, and then had to realize it failed, before the members that constituted it could do anything. And even now, the forces supporting the original status quo just want to get back to doing business the old way, seeing the economic downturn as just a cost of doing business.

A recent scientific study demonstrated that the particular kind of derivative that figured largely in the 2008 market debacle was so immensely complicated in terms of its valuation, that the problem was computationally intractable. In other words, even with the help of the best computers, you could not separate the wheat from the chaff on collateralized debt obligation.

What is the value in such a gamble? What constructive purpose does it offer? Or is it just a great way to hid the kind of market losses and market risks that logical, rational people should need to know about in order to run our economy well as members of the market?

The question I offer is this: can human beings manage something so complex as our economy by the seat of our pants?

The answer I offer is this: Not entirely. Some elements we can. But there are certain kinds of instruments, derivatives, and practices that are just so risky, or which offer so much temptation for bad faith decision-making, that they must be regulated, because the amount of attention and computation necessary to rationally sort out the mess they could produce is just too burdensome for a market economy, for the people who need reliable information, reliable relationships, and the ability to delegate responsibilities to others with the expectation that they will do their jobs right.

We need regulation and laws to hold people accountable because otherwise our economy cannot be run by human beings, nor be much good for them at that. We need the system to be adjusted and standardized to fit the needs of those it serves, not merely the ambitions of those who serve us in these financial functions.

Shorter version of that: We need the system designed so that these people have to do some actual good for the rest of us to make their money.

Posted by: Stephen Daugherty at October 28, 2009 12:42 PM
Comment #289959


Stephen, perhaps you should ask President Obama, Larry Summers and the Democratic Congress when that needed regulation will be coming forth. It has been over a year since the housing collapse and a year since the banking meltdown.

The financial sector has the best greased hands in the lobbying industry.

Posted by: jlw at October 28, 2009 5:08 PM
Comment #289960


If you are facing forclosure and if you can come up with $2000, you can get your morgage refinanced, rebundled and resold as a derivitive.

Posted by: jlw at October 28, 2009 5:12 PM
Comment #290035

“financial sector has the best greased hands in the lobbying industry.”

They don’t even need it. They have unfettered access to their good friends Geithner and Bernanke. It’s a legitimate complaint from those who would like to have the same access.

Posted by: ohrealy at October 29, 2009 10:37 PM
Comment #290105

…to win the battle of democracy…
Where’d that come from?
…government controls business for the intrests of private enterprise…
Does anyone have a lable for that one?

Posted by: Stephen Hines at October 31, 2009 7:43 PM
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