west Wheaton, Maryland...cracked duplexes...stained mattresses...kitten-sized rats...paved over front lawns...autos that double as mobile sheds...loud music you can feel before you hear...drunks pissing in your shrubbery...teenagers yelling obscenities at each other...children screeching like banshees...now where're my meds, dammit???
I hate practical jokes because I tend to suspend disbelief with alarming ease, particularly when I’m off my meds.
There are so many fools in this world that we definitely need to claim a day all our own, if not an entire week or fortnight. In that spirit, I present you with this silly post from this weekend that I almost neglected to stick up here.
Following the financial/banking “series” from last week, below are some words to the effect that bankers are wankers. If you are in the banking industry and you are not a wanker, then please forgive me for these cheap shots. They are, of course, aimed at your unsavory colleagues, notyou. I’ve thrown in a couple of curiosities and non sequiturs for variety.
And if you are unfamiliar with colorful cockney vernacular (e.g. wanker), maybe try renting a few choice episodes of “Only Fools and Horses” or something.
These nugatory nuggets are presented in vainglorious Comic Sans MS (where installed) for your general irritation and vexation.
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
—Anonymous
(often attributed to Mark Twain, probably erroneously)
“Banks have a new image. Now you have ‘a friend,’ your friendly banker. If the banks are so friendly, how come they chain down the pens?”
“bank’s closed”: Slang from the 1920s that meant no kissing or making out was allowed.
great halls of power
just as the most important people in the city are complete and utter bankers the most important people in the army are the absolute highest rankers
—Michael E. (b. 1967),
British wag
(This guy is likely riffing on British rhyming slang vis-à-vis wankers.)
Bankers Are Just Like Anybody Else, Except Richer
This is a song to celebrate banks,
Because they are full of money and you go into them and all you hear is clinks and clanks,
Or maybe a sound like the wind in the trees on the hills,
Which is the rustling of the thousand dollar bills1.
Most bankers dwell in marble halls,
Which they get to dwell in because they encourage deposits and discourage withdrawals,
And particularly because they all observe one rule which woe betides the banker who fails to heed it,
Which is you must never lend any money to anybody unless they don’t need it.
I know you, you cautious conservative banks!
If people are worried about their rent it is your duty to deny them the loan of one nickel, yes, even one copper engraving of the martyred son of the late Nancy Hanks2;
Yes, if they request fifty dollars to pay for a baby you must look at them like Tarzan looking at an uppity ape in the jungle,
And tell them what do they think a bank is, anyhow, they had better go get the money from their wife’s aunt or ungle.
But suppose people come in and they have a million and they want another million to pile on top of it,
Why, you brim with the milk of human kindness and you urge them to accept every drop of it,
And you lend them the million so then they have two million and this gives them the idea that they would be better off with four,
So they already have two million as security so you have no hesitation in lending them two more,
And all the vice-presidents nod their heads in rhythm,
And the only question asked is do the borrowers want the money sent or do they want to take it withm.
But don’t think I’m against banks,
Because I think they deserve our appreciation and thanks
for eliminating the jackasses who go around saying that health and happiness are everything and money isn’t essential,
Because as soon as they have to borrow some unimportant money to maintain their health and happiness they starve to death so they can’t go around any more sneering at good old money, which is nothing short of providential.
1. While this line sounds outlandish to us today, thousand dollar bills (with Grover Cleveland’s likeness) were around when Nash penned this poem. The U.S. Mint ceased issuing larger denominations after World War II and they were retired from circulation entirely in 1969 to help thwart organized crime rackets.
2. Nancy Hanks was Lincoln’s mother, so “one copper engraving of the martyred son of the late Nancy Hanks” would refer to a penny, naturally. This might have been more obvious had you grown up way back during the early 20th century like I did. Truly I am an “old soul.” Okay, now you know I’m yanking your chain.
* * *
Below you’ll find my stab at an Ogdenashy ode. Only I take aim at a very 21st Century set of targets. This is clearly more jeer than jeremiad, inveighing against influential and irresponsible media figures with churlish cheekiness. However, the underlying target is really their employers, the mainstream media outlets that featured personalities who indulged in chatty cheerleading during the bubble and splenic spluttering during the bust.
Business media personalities are just like anybody else, except they have unusually exorbitant hair & makeup allowances
This is a verse to celebrate every silly talking head,
Who lulls with such fatuous chatter the most easily led.
Most fashion-plate correspondents sit in Herman Miller Aeron chairs
And affect light conversation and smiles that draw willing viewers’ stares,
And particularly because they all observe one rule, and their fans do a great deal to support it,
Which is you must never deliver news or analysis unless it is dumbed down and distorted.
Fiend, you forsook to foresee the financial fiasco, forsooth!
Objectivity: FAIL, you fraudulent Wall Street mouthpiece herald!
If we worry about our savings is it your duty to deny us the reverse of the coin of truth,
Even if it costs us some more numismatic portraits of the martyred son of the late Rose Fitzgerald?!
While your ink-stained betters lose their shirts despite all their toil,
You still prosper while peddling your infotainment snake oil.
But don’t think I’m against air-brushed personalities,
With their packaged presentations and banalities,
Because I think they deserve our full gratitude
for helping to cultivate our dull attitude
Besides which, we'd be hung higher and drier
And find ourselves even more out-of-lucker,
If our culture failed to be a supplier
Of the latest, greatest model of sucker
—Publius Ignominius Stuporis Slumburbius
(two-bit American wag)
Joey ♥ Maria
* * *
Gabba gabba hey... To make up for that kind of lame Ram0nes song, I feel compelled to include a classic from 1977’s R0cket to Russia LP. “Teenage Lobo†omy” keeps up the brain damage theme (albeit sans zombies), complete with Lego stop-motion action. Hey, these little dudes play air guitar better than I do, and I have the luxury of articulated elbow and wrist joints.
B¡lly C0rgan of the Smash¡ng Pumpk¡ns, “¢herub R0ck,” S¡amese Dream (1993)
¢ $ ¢ $ ¢
Here are two token positive quotes about market investment and speculation.
“A speculator is a man who observes the future, and acts before it occurs.”
—Bernard Baruch
“If there were no bad speculations there could be no good investments; if there were no wild ventures there would be no brilliantly successful enterprises.”
—Francis W. Hirst (1873 – 1953)
British economic journalist
¢ $ ¢ $ ¢
In keeping with the times, the rest of the observations I include are inevitably more circumspect, cautionary, or outright negative.
“The main purpose of the stock market is to make fools of as many men as possible.”
—Bernard Baruch
“There are two times in a man’s life when he should not speculate: when he can’t afford it, and when he can.”
—Mark Twain (1835 – 1910)
iconic American writer
“Another great evil arising from this desire to be thought rich; or rather, from the desire not to be thought poor, is the destructive thing which has been honoured by the name of ‘speculation’; but which ought to be called Gambling.”
—William Cobbett (1762 – 1835)
British journalist & reformist thinker
“[T]he stock market has not come down to historical levels: the price-earnings ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average. … People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes.”
This graph shows the recent housing hypervaluation that helped to dramatically inflate 2000s securities values, as derived from data included in Shiller’s 2005 book. (The graphic was skillfully assembled by Wikipedian “Frothy.”)
“October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.”
—Mark Twain
The hunt for dread October...
I cannot find the original context for Twain’s quip. Of course, he never lived to see the most spectacular stock market crash of the twentieth century, spanning October 24 – 29, 1929, (or the “roar” that preceded it, which he likely would have laid waste to with his wit).
However, the 1907 stock market panic, which traced many of its roots to the previous year, unfolded dramatically in an October. It also overlapped with a sudden monetary contraction and a widespread banking panic.
If you mention the “Panic of ’73” today, some baby boomers may think of the supply shock crisis that began in mid-October of 1973 when OPEC began waging a campaign of punitive crude oil pricing against the U.S. From its period peak in January 1973 to its relative nadir in early December 1974, the DJIA lost almost half of its value. [ (577.6012/6/74 – 1047.591/5/73) / 1047.59 = –44.86% ]
The “Black Monday” nose dive of October 19, 1987 was the largest single-day percentage market loss. (Oddly, the related recession didn’t set in until a few years later. Even now, the reasons for the speculative volatility of the latter ’80s and subsequent late-onset stall in the economy remain opaque, especially compared to other recent recessions.)
“Speculation is only a word covering the making of money out of the manipulation of prices, instead of supplying goods and services.”
—Henry Ford (1863 – 1947)
American industrialist
“The speculation economy is one in which business management focused on production is replaced with business management focused on stock price.”
“The short-termism of the late 1990s and early twenty-first century simply is an exaggeration of a quality that was embedded in the American economy a hundred years ago. The typical public corporation we know today, what I will call the giant modern corporation, was created during the merger wave of 1897 to 1903. It gave birth to the modern stock market. As it did, it transformed speculation from a disruptive game, played by a few professionals and thrill-seeking amateurs that from time to time erupted into a major frenzy, into the very genetic material of the American stock market, American business and American capitalism.”
—Lawrence E. Mitchell
The Speculation Economy ... (2007)
“Now, speculation — in which the focus is not on what an asset will produce but rather on what the next fellow will pay for it — is neither illegal, immoral nor un-American. But it is not a game in which [the vice chairman] and I wish to play. We bring nothing to the party, so why should we expect to take anything home?
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
—Warren Buffett (b. 1930)
American executive, investor & philanthropist, FY2000 Chairman’s letter to Berkshire Hathaway, Inc.
“In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”
“Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.”
—Charles Mackay
“National Delusions,” Extraordinary Popular Delusions ...
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!”
—Charles Mackay
“National Delusions,” Extraordinary Popular Delusions ...
“Some in clandestine companies combine; Erect new stocks to trade beyond the line; With air and empty names beguile the town, And raise new credits first, then cry ’em down; Divide the empty nothing into shares, And set the crowd together by the ears.”
—Daniel Defoe (ca. 1660 – 1731)
English writer, orig. publ. context unknown (quoted by Mackay)
“If a man walks in the woods for love of them half of each day, he is in danger of being regarded as a loafer. But if he spends his days as a speculator, shearing off those woods and making the earth bald before her time, he is deemed an industrious and enterprising citizen.”
Econocratic brains everywhere recoil in fear as the zombie smorgasbord continues in Washington. The administration persists in deflecting and downplaying criticism that it is coddling the investment banking industry and rewarding its reckless practices. Instead, the president and his advisers seek to focus media attention on upcoming regulatory reforms.
But many of us still feel that the White House is essentially saying to Wall Street: Don’t worry, we’ll cover your assets. In unsettling ways, the federal government is taking over where AIG left off, assuming much of the risk burden produced by pooled toxic assets, while inviting sanguine investors to play the game with too little to lose.
What should we nickname this pool of little orphaned assets now being pushed by the U.S. Treasury? The Federal Fools’ Fund (FFF)? Shall we call these new arrangments Debt Unlimited Miscellaneous Public-Private Partnerships (DUMPPPs)?
Meanwhile, the U.S. GDP contracted by 6.3% in the 4th quarter of 2008, while the national unemployment rate will likely hit ~8.3% by the end of the current quarter.
* * *
Here’s a flashback from last fall, when the economy seemed a lot more intact, even if the credit system was on the rocks:
“Credit markets do not function. Why not? Because the word ‘credit comes from ‘credibility.’
The left side of the balance sheet has nothing right and the right side of the balance sheet has nothing left. But they are equal to each other. So accounting-wise we are fine.
Transparency is ‘what you see is what you get.’ And what you don’t see gets you.”
Now who was the witty wiseacre behind this wry wordplay? Why that would be the AIG vice chairman entertaining his financier friends at a luncheon on October 11, 2008.
The hoi polloi have mostly stopped calling for the heads of these AIG goons. For now, their righteous rage is subsiding as popular sentiment retreats to more familiar territory — seething impotent outrage, frustrated disgust, and reluctant resignation.
But quiet terror simmers, particularly among those who distrust the exuberant overtures of obscurantist optimists.
By the way, if you still want your zombie fix, check out cartoonist Mark Fiore’s “Zombie Bank” animation.
* * *
De bankier en zijn vrouw (The Banker and His Wife) [cropped] (after Quentin Matsys) oil on wood, date unknown Marinus Claesz van Reymerswaele, ca. 1490 – 1567 Netherlands collection of the Musée des Beaux-Arts, Valenciennes, France
Instead of continuing the zombie theme, I’ve included an early Northern Renaissance painting. Bankers, money-changers, and other monetary specialists were often regarded with suspicion and wariness back then, too.
* * *
Today I recommend a very thorough and eloquent piece written by a thoughtful liberal-leaning progressive:
For focus on the banking industry debacle, skip down to the 11th paragraph in the article and/or search for the lead sentence:
The chance of a return to normal depends, in turn, on the banking strategy.
Here Galbraith joins the chorus of people who insist that the current financial crisis resembles the banking system failures of the 1930s more closely than the credit stumbles of the previous three decades.
He reminds us of the current plight of middle class Americans who have to rely on our government entitlements safety net now more than ever.
Galbraith also adds to the colorful metaphors enlivening the debate by characterizing the recent wanton behavior of Wall Street speculators as a “poisonous game of abusive mortgage originations followed by rounds of pass-the-bad-penny-to-the-greater-fool.”
He points out that the FDIC could justifiably take over distressed Wall Street institutions by placing them in full receivership.
He also implies that a “state of denial” that began in the waning days of the Bush administration persists within the current Treasury leadership.
Galbraith also reminds us of why former SecTreas Henry Paulson eventually began to back off the throw-the-money-in-the-hole approach. First there was the sheer scale of the potential losses involved (as suggested by the ravenous appetites of certain cash-flow-starved financial institutions feeding at the TARP trough). In addition, the task of discovering the true value of these mysterious assets was highly arbitrary and rife with risk and wishful thinking.
He is blunt about so-called “troubled assets”:
“The reasonable inference would be that many more of the loans will default. Geithner’s plan to guarantee these so-called assets, therefore, is almost sure to overstate their value; it is only a way of delaying the ultimate public recognition of loss, while keeping the perpetrators afloat.”
He also implies that delaying the inevitable may lead us into further financial and economic hazards while sidelining “normal prudent banking.”
For example, instead of soundly restructuring, reforming and restoring our lending systems to health, delay and enabling may provoke investors to wreak havoc in other risky markets or indulge in additional rounds of klepto-capitalism.
Galbraith also cautions us that the shortsightedness of the plan signals that the White House’s economic brain trust fails to recognize that we are faced with “a true crisis -- an integrated, long-term economic threat.”
(Many of us felt similarly when we heard Fed chairman Ben Bernanke utter the following prediction/prescription on CBS’s “60 Minutes” ten days ago: “We’ll see the recession coming to an end, probably this year. We’ll see recovery beginning next year.”)
As a liberal, demand-side economic thinker, Galbraith challenges the primacy of what I’d call “mechanical” or “system flow” economics. He stresses the importance of “creditworthiness” anchored in consumer economic fundamentals such as asset prices. He also states that Americans who find themselves suddenly asset- and cash-poor don’t tend to rush headlong into more credit, even if the lending spigot is set at full blast again. He argues that this reluctance to spend and borrow will dampen any multiplier effects triggered by cash and credit injections into consumer markets.
And then Galbraith ventures into that misunderstood decade of our economic history, the 1930s.
He quotes a December 2008 paper (“Time for a New ‘New Deal’” [PDF, 59k]) by economist Marshall Auerback. (Interestingly, Mr. Auerback appears to be a global portfolio manager fluent in areas like equities trading.)
Again, I encourage you to read Galbraith’s piece. He argues for public investment and relief initiatives that borrow the most productive and redemptive aspects of FDR’s New Deal. However, like many others, he credits the war mobilization, not the New Deal, for helping to stoke enough consumption, investment, and trade to propel the United States out of the rut of the Depression.
The current thinking among many social liberals is that a millenial “Newer Deal” could revive our economy.
However, many of us believe that this assumption is fatally flawed. We fear that such an audacious undertaking could yield few immediate results, while plunging our country further into debt.
Such programs should be supported as standalone public relief and investment measures, without being hitched to false hope and inflated promises.
Bankers at major living-dead Wall Street investment firms have continued to graze on the gray matter of prominent members of the new administration’s economic crisis team.
• Neel Kashkari, Interim Asst SecTreas for Financial Stability
Financial jocks jumped on news of Geithner’s proposed “public-private partnership.” Investors delighted, noting that the plan preserved the sanctity of business-as-usual investment market culture without any threat of significant “change.” High fives were heard everywhere throughout global trading floors and boiler rooms. Whether they were genuinely grateful for the plan, or just looking to make a few gratifying long sales before Friday, Wall Street profiteers rallied and the Dow climbed 500 points on Monday.
Mainstream media talking heads rejoiced, then promptly phoned their brokers for updates at the bottom of the hour.
* * *
In other news, marginalized economists and scholars successfully thwarted the zombies by donning lampshades and sitting in the corner while the weekday party took off. However, a few of them snuck out earlier this week and reported their close call with the financial undead on various op-ed pages, blogs, and public broadcasts.
* * *
Okay, kidding aside, here’s a sampling of various experts’ reactions to these recent developments:
First we have Paul Krugman’s early rejection of the plan as details were leaked over the past few days: “Despair over financial policy” (The Conscience of a Liberal [NYT blog], 3/21/2009).
He declares, “The zombie ideas have won” and repeats the refrain that the Treasury Department is tempting fate by preserving a systemic moral hazard.
“[Geithner, Summers, et al] have decided that the way to get private money, to rescue these toxic assets, is to double down on the same kind of strategy that Hank Paulson unveiled back in October that didn’t work, which was to have the government put up guarantees — in this case [the] government’s providing as much as 94% of the capital. I think there’s an echo chamber effect going on where Larry Summers and Tim Geithner are talking to each other, and they’re talking to the likes of Goldman [Sachs] and Citigroup. They’re talking to the very same people who created the mess, and they’re not talking to the critics of this approach. My sources say they’re not even talking to Paul Volcker — who nominally heads a task force appointed by the president, that has never met — who’s a critic of this. They’re certainly not talking to Joseph Stiglitz, the Nobel Prize laureate at Columbia [University], Nouriel Roubini at NYU, Paul Krugman — well-informed people who think this whole approach of having government put up a lot of the capital, guarantee almost all of the loss in the hopes of bringing hedge funds and private equity — the least transparent part of the system, the most underregulated and prone-to-abuse part of the system — back to the party, to do the same kind of convoluted deals that helped cause this mess. And it’s incredibly risky, it’s incredibly expensive, it may well not work, and there’s also the risk of political backlash.”
“Let me just say: If this were to work and a lot of rich guys got even richer, I would hold my nose and say, ‘If that’s the price that it takes to get the banking system running again, I can live with it.’ My concern is more that it’s not going to work and furthermore that it’s rife with potential for abuse. Let me give one little example and I hope this is not too technical: So, a hedge fund — or private equity company — comes in and says, ‘We will buy this toxic asset at fifty cents on the dollar.’ It’s a pool of loans. Then [the company] buys a credit default swap. So, it’s ‘heads I win, tails you lose.’ If the value of the asset goes up, [the] hedge fund makes out. If the value of the asset goes down, the government eats the loss, and the hedge fund collects on the credit default swap. There is all kinds of potential for these gains. And make no mistake about it, this was not designed [in] the best interest of the U.S. taxpayer. This was designed on Wall Street, by Wall Street, for Wall Street. .... If you look at the transition from Paulson to Geithner, it’s the same team.”
“This [current approach] is the worst of both worlds. The Treasury, which does not have the resources to do this properly, is intervening in an episodic and ad hoc way. If you're going to have this degree of government involvement, it’s better to do it with your eyes open, with some transparency there.”
“[Hedge funds and private equity firms] exist to do deals — complicated, highly leveraged deals. This [plan] gives them a chance, gives them a new lease on life. Better yet, it’s guaranteed by the government. Hedge funds — people are deserting hedge funds in droves — this gives them a new lease on life. And I think the administration is underestimating the populist backlash against using taxpayer money and taxpayer guarantees, so that a whole new round of rich guys — in some cases the same old rich guys — can get even richer, at taxpayer expense. I also think that the government is going to need more money one way or the other and, if you do it via an RFC, where you don’t enrich private speculators but you help ordinary people and you do it directly, there’s going to be much more popular consent for spending taxpayer money and putting taxpayer loan guarantees at risk, if you don’t do it by enriching a lot of middlemen, but you do it more straightforwardly. And, you know, Citi, what Citigroup worries about — since they are, I mean, if anybody’s insolvent, Citi’s insolvent, right? The government has put about 65 billion dollars into Citi. You can buy the thing by buying up all of its shares for 17 billion right now. If that’s not insolvent, I don’t know what’s insolvent, because if it weren’t for all this government money, they’d be out of business. So we’re really not talking about 12,000 banks. We’re talking about a handful of large banks — Citi, maybe Bank of America, possibly Wells Fargo — that would have to go through some kind of receivership project and come out the other side. [It’s] much better to do this straightforwardly.”
“Any time we subsidize the banks, like this plan does, we are giving some money to those long-term debt holders and to the equity investors in the banks. If you forced the long-term debt holders to convert into equity — which is sort of a receivership, sort of a Chapter 11, but could be done somewhat differently so that the government wasn’t necessarily running things — you get a private sector solution and the banks become potentially quite solvent, ’cause there’s a lot of long-term debt out there and it doesn’t cost the government anything.”
“I have to agree with Bob [Kuttner] — which I don’t often do — on most of what he said. This is not a good solution, there are better solutions out there, and the plan is flawed. ... I think that the thing to understand is [that] there are two possible scenarios: The scenario number one, which the administration is banking on, is that the toxic assets — and they are ‘toxic’ assets, not ‘legacy’ — are undervalued, and that the banks are fundamentally solvent. That was the assumption in the original Paulson plan; that is the assumption here. The other scenario is that the toxic assets are correctly valued and the banks are not solvent. This is where Paul Krugman is [coming] from, this is Nouriel Roubini, on the right you got Luigi Zingales, one of my colleagues, Ken Rogoff — former chief economist of the IMF — and in my view that’s probably the more likely scenario. So now let’s look at what happens in this plan under those two scenarios. If the scenario is that the toxic assets are correctly valued, and the banks are not solvent — meaning they don’t have enough equity to support their business — this plan is not going to help. ’Cause the banks won’t sell, ’cause if they’ve got these things marked at a particular point, if the value that the hedge funds pay is not above those marks, this doesn’t help because it doesn’t give them more equity.”
“The whole idea here is to get the banks solvent, to get them more equity. .... that I think is the most likely scenario, ’cause remember [that] the economy has deteriorated substantially since the first Paulson plan, and, you know, we were in trouble at that time [too]. Well, ... they take that gamble [under the current plan] and now you’ve created a situation where it’s heads, the hedge funds win, and tails, the government loses. And this becomes a very, very expensive program. And that’s also the case, by the way if we’re in the situation where it is a liquidity problem, not a solvency problem. The hedge funds will either make a lot of money, which will create outrage at the other end, or the government will end up losing a lot of money, neither of which is great, and there are better solutions. The government really doesn’t get anything here.”
