SEC Prophecy in 2004

May 3, 2010 2:08 PM

"If anything goes wrong it's going to be an awfully big mess. Ha, ha, ha!" The day the S.E.C. changed the game. [flash w/ audio]
posted by RoseyD (35 comments total)

Myself, I would be thrilled to see these dudes being strung up from lampposts.
posted by dunkadunc at 2:23 PM on May 3, 2010 [3 favorites]

It makes me furious that Fox News, most GOP members, vast swathes of Republican supporters and even a good number of Democrats could look back on this - the moment when deregulation perhaps hit its zenith and everything was set rolling for disaster - and still think that free market economics, this total lack of government regulation on the financial sector could possibly be a good thing.

We have just seen it fail, in a monumental, and obvious way, and yet Obama and his plans to stop it happening again are evil and communist and... What in the fuck is wrong with these poeple? You know, the SEC announce they're charging someone from Goldman with fraud, and two days later Fox spend more airtime with the story simply because someone at the SEC got done surfing (stupendous amounts of, admittedly) porn. Scandal, and derailing liberals is far more important than not destroying your economy with greed! Jesus.

Sorry, I did say it made me angry.
posted by opsin at 2:25 PM on May 3, 2010 [9 favorites]

you make it sound like it was the same person (goldschmid) asking that question was also laughing about it. it sounds to me like it was someone else laughing.
posted by Dr. Twist at 2:25 PM on May 3, 2010

dunkadunc Myself, I would be thrilled to see these dudes being strung up from lampposts.
Burhanistan Is there as specific term for this species of ambivalence?

Chickenhawking. Desire that there be a war, mixed with reluctance to personally do any fighting.
posted by aeschenkarnos at 2:28 PM on May 3, 2010 [3 favorites]

Strangely, I had an old professor approach me just an hour ago and tell me how it was funny that the meltdown I was predicting in his class two years ago (other students derided me) had, in fact, come about.
posted by dunkadunc at 2:29 PM on May 3, 2010 [1 favorite]

Yes, I could have put " . . . " to indicate his laughing later . . .

It's so eerily nonchalant. And so tragic.
posted by RoseyD at 2:31 PM on May 3, 2010

We've agreed what you are sir, now we are only haggling over the pri method of execution.
posted by Babblesort at 2:34 PM on May 3, 2010 [4 favorites]

The NYTimes wants me to "upgrade the Flash player" on my iPhone. I'll have Steve Jobs get
right on that.
posted by killdevil at 2:34 PM on May 3, 2010 [11 favorites]

It's actually audio from a hearing, of the SEC where they actually decided to allow several banks decided large banks to use computer models to model risk, rather then simple objective criteria, which vastly increased their leverage. The narrator makes it out that this was the turning point where everything came apart, but I think if you looked back you could find many problems. This was just a symptom of ongoing regulatory capture.
posted by delmoi at 2:40 PM on May 3, 2010 [3 favorites]

Mod note: added a flash/audio warning, carry on
posted by jessamyn (staff) at 2:46 PM on May 3, 2010

This was just a symptom of ongoing regulatory capture.

Seconded. By the time the meeting in question happened, the castration of the SEC was a fait accompli. Concentrating on a single event may make for good entertainment, but it's like fixating on the moment when a cheetah pounces on and takes down a gazelle, ignoring the hours of quiet stalking that led up to the fatal moment. The bank's victory over regulation wasn't instantaneous, it was a painstaking process.

Looking back for some magical tipping point moment falsely presupposes that there is any single event which, if it had not happened, would have resulted in the meltdown not occurring. I doubt very much that this is the case.

The meltdown was not so much a well-planned crime perpetuated on the public by a secret cabal but one that a large number of people, some more wittingly or venally than others to be sure, actively participated in despite knowing on some level that they were taking part in a shell game. What we now realize and regard as little more than smoke and mirrors was for several years a wealth-generating machine of enormous magnitude. Faced with that, it should not be surprising what happened, nor should it be surprising that we'll do it again eventually.
posted by Kadin2048 at 2:59 PM on May 3, 2010 [11 favorites]

Delmoi is right. This is not the only point where the dams were weak. I'd argue that the decision to repeal critical provisions of Glass Steagall, for example, was far more damaging.

Also, I don't think it is the commissioner laughing at his own concerns in this hearing. He points out the potential increased risk a couple of times, and someone else is laughing, apparently because everyone in the room understood how disastrous a failure to properly assess risk would be.
posted by bearwife at 3:03 PM on May 3, 2010

It makes me furious that Fox News, most GOP members, vast swathes of Republican supporters and even a good number of Democrats could look back on this - the moment when deregulation perhaps hit its zenith and everything was set rolling for disaster - and still think that free market economics, this total lack of government regulation on the financial sector could possibly be a good thing.

Just, you know, to keep things a little less hyperbolic -- the vast majority of people, GOP or otherwise, are okay with a proper amount of regulation. The question is on whats the proper amount and what are the effective regulations. It's not a discussion on regulations vs. no regulations (at least, not much of a discussion, outside of non-mainstream libertarians & RP)

Both parties share a tremendous amount of blame in this game. Hell, it was Clinton who pushed to make it easier for people to buy houses who otherwise probably shouldn't, essentially rewarding banks for making craptastic loans. A "regulation" that I think most of us could agree was probably a bad idea.
posted by rulethirty at 3:05 PM on May 3, 2010

The NYTimes wants me to "upgrade the Flash player" on my iPhone. I'll have Steve Jobs get
right on that.

Ah, I see he didn't cc you on that. I'll forward it over to ya.


When I missed a deadline with a client at my old job (despite the fact the timeline was practically impossible) I got written up and it's on my work file. I believe any future employer can request this and see it.

I hope this is on theirs somewhere with a big red stamp that says "He done fucked up" (or "She..." for Ms. Nazareth). I know it would have little effect because they would explain it away in the interview using the Washington euphemism for "head firmly in sand": "There was no way to foresee...etc."

I wonder if we were to look in their portfolio we would see the supposed lack of foresight.
posted by Bathtub Bobsled at 3:10 PM on May 3, 2010

and still think that free market economics, this total lack of government regulation on the financial sector could possibly be a good thing.

If we actually let the companies bear the fruit of their terrible decisions, instead of socializing their losses while letting them keep their gains, free market economics would have rid us of those parasites. Don't forget that. That huge crash we almost had, that we spent trillions of dollars "preventing"? That was Mr. Market trying to eliminate bad ideas and bad players from the system. We spent all that money making sure that the free market couldn't do its job.

And that wasn't the first time.... for the last twenty years or so, anytime the markets signaled pain, anytime the system said, "Hey! something's really wrong here!", we collectively stuffed cotton in our ears and jammed our veins full of morphine.

Pain is how the economy gets rid of bad ideas, and if we refuse to allow the economy to feel pain, it can't figure out which ideas are bad until they outright kill us.
posted by Malor at 3:11 PM on May 3, 2010 [8 favorites]

...the vast majority of people, GOP or otherwise, are okay with a proper amount of regulation.

We aren't talking about the "vast majority of people," we're talking about the 15% of America who don't know shit and won't shut up, and the 1% who work very hard to make sure those who won't shut up have memorable sentence fragments to shout over anyone who tries to regulate.
posted by Bathtub Bobsled at 3:13 PM on May 3, 2010 [6 favorites]

...we collectively stuffed cotton in our ears and jammed our veins full of morphine.


If you're using morphine, that's not what you do with the cotton...

I mean, at least... that's what I heard from some guy who isn't me.
posted by Bathtub Bobsled at 3:16 PM on May 3, 2010 [3 favorites]

I know this is a bit off topic, but i kinda think GS is getting shafted over shorting the housing market, and I think that politicians are demogoguing the derivatives issue in general, even when a lot of them no better.

Their entire business model was built around taking both sides of every bet, so they'd get small, risk-free returns, greatly compounded by leverage at incredibly low interest rates. Of COURSE when the housing market tanked they'd rake in tons of dollars from the short side. Their business model depended on it. And there was really nothing wrong with the model. The problem was that everything went so bad all at once that the companies who were supposed to be covering the Credit Default Swaps couldn't cover their end of the deal.

IMO, the solution is to raise interest rates and limit how much leverage these guys can use, so that when the inevitable black swan breaks their model, it limits the damage. It would probably also be a good idea to get rid of things like synthetic CDO's so that people are genuinely hedging and not just gambling.
posted by empath at 3:20 PM on May 3, 2010 [2 favorites]

someone else is laughing, apparently because everyone in the room understood how disastrous a failure to properly assess risk would be.

Yeah, I heard that laughter as very much "that was the understatement of the year".
posted by empath at 3:22 PM on May 3, 2010 [1 favorite]

Hell, it was Clinton who pushed to make it easier for people to buy houses who otherwise probably shouldn't, essentially rewarding banks for making craptastic loans.

Can anyone provide more info about this? I know Glass-Steagall was repealed during Clinton's time in office but I remember Bush giving a big speech about The American Dream and ordering Fannie and Freddie to give more people home loans. Am I misremembering or is this more blame shifting.
posted by irisclara at 3:31 PM on May 3, 2010

My ambivalence springs more from my disdain of populist rabble than the idea of eviscerating bankers and speculators and hanging them from office building edifices by their intestines.

Lehmanfreude?

I'll...uh...show myself out.
posted by jquinby at 3:35 PM on May 3, 2010 [3 favorites]

Deregulation is what economies crave. It's got electrolytes.
posted by Kirk Grim at 3:39 PM on May 3, 2010 [4 favorites]

Sometimes I wonder, "hey, the idea behind deregulation is that while the risks are higher, the rewards can also be much greater, so why wouldn't we respond to a black swan by letting that supposed deregulatory juice flow until things are growing again and then throw regulations down?"

And then I remember that the real idea behind deregulation is that a very few people can get obscenely rich off the rest of us, oftentimes without our knowledge or consent. And I feel a little bit better.
posted by Navelgazer at 3:55 PM on May 3, 2010

Is there as specific term for this species of ambivalence?

I suggest "high-tension apathy."
posted by JHarris at 4:03 PM on May 3, 2010 [2 favorites]

Is there as specific term for this species of ambivalence?

Its called Affluenza.

I for one am tired of hearing that the loose money laissez faire started under Clinton. It did but with one huge distinction. Its called a budget surplus. Nominal as that budget was, it was light years from where the GOP spent us to in the last decade. Its arguable whether to loosen the credit spigot when you are running surpluses, but when congress is also spending money "liken a drunken sailor" (not my term for it) it becomes an exercise in diversion; a smoke screen for a broad-day bank robbery.

The rich just went and took their money off the table and we're still arguing about the evil creep of socialism and the invasion of the US by landscape workers/ wtf
posted by Fupped Duck at 4:15 PM on May 3, 2010 [2 favorites]

Malor, I'll give you that that's by far the best and most eloquently put argument for it I've come across, the problem is there's just no way to know whether you're right. I think, to play in the system we have, you certainly can't have the sort of deregulation that allows this spurious, credit based profiting, since it spirals greedily out of control before plunging nations into depressions. I think it would be a far smaller, and more realistic change to the way economics works to keep regulating it in a responsible manner so that it works, rather than letting the rich get richer, patting themselves on the back with multi-billion dollar bonuses while screwing the rest of us by crashing our economies.

You know, it's deregulation that, regardless of whether it 'weeds out the bad apples', shafted however many million people by selling them fraudulent sub-prime mortgages.

What is government for (among many other things), if not to protect the poor from the douchebags who think they can get away with that? And even if you don't believe that's what it's there for, can't people agree that it's a good thing to do, even if not as much fun as the free market?
posted by opsin at 4:24 PM on May 3, 2010 [1 favorite]

Malor: "If we actually let the companies bear the fruit of their terrible decisions, instead of socializing their losses while letting them keep their gains, free market economics would have rid us of those parasites. Don't forget that. That huge crash we almost had, that we spent trillions of dollars "preventing"? That was Mr. Market trying to eliminate bad ideas and bad players from the system. We spent all that money making sure that the free market couldn't do its job."

Except that the majority of those "bad players" were middle- and low-income Americans invested in mortgages they couldn't really afford but were sold by those that knew better, as well as investing their retirement money into the market gaming that same system. They were inextricably tied in with those investment firms; if we'd let them "bear the fruit" we'd be in a depression.

Or, what opsin said.
posted by Red Loop at 5:03 PM on May 3, 2010

Coming from a different angle, Michael Blim, over at 3QuarksDaily, posted a very interesting short piece on the bailout of Greece, and he had a particularly powerful insight here:

As yet another act in the world economic drama concludes, and another troop of actors prepares to take the stage, the basic point of the play is being lost. As speculative manias overtake other countries and/or other assets, and as instances of fecklessness and fraud feed the public demand for vengeance, we are overlooking the fact that we are living through the most massive redistribution of wealth rich societies such as ours have seen since the Gilded Age at the end of the 19th Century. The massive debts of private capital are being socialized. States are taking on society’s debts at a rate not seen since the Second World War. They are creating public debt to pay off or at least absorb the debts arising from asset crashes, bank and brokerage failures and near-failures, and massive unemployment triggered by recession. Banks and other financial institutions could not carry their own debt, so now the government is carrying it for them, either directly or by providing them with new credit at no cost with which they can become profitable again. The banks and other brokerage institutions have effectively cleaned up their balance sheets with newly created public debt, while the U.S. and European central banks have laundered their bad debts.

It's interesting seeing such good criticism coming from the left, instead of just from fiscal conservatives. I've been saying for some time that we've completely changed what the American economy is in the last 18 months, but he went much deeper with that observation, that we're turning back into nation-states. He doesn't mention, however, that the structures put the risk on the government books, while leaving the profit in private hands, so the outcome won't even be as good as the original nation-states.... instead, the inevitable long-term outcome is massive poverty for most, enormous riches for a few, and eventual complete fiscal failure of the states.

Everything you've worked for in your entire life, all those hours of sweat and toil, all that scrimping and saving and doing without, is largely irrelevant in the face of this kind of economic structure. These guys can evaporate all the wealth you've ever built with a few keystrokes in a computer, taking on a dangerous position that's insured by the government.

It's looting on a scale that must have Hallburton slack-jawed with amazement.
posted by Malor at 5:24 PM on May 3, 2010 [3 favorites]

Oh, I missed this, sorry:

They were inextricably tied in with those investment firms; if we'd let them "bear the fruit" we'd be in a depression.

That is absolutely true. Completely, 100% agreed. We'd be slam in the Second Great Depression right now, sans bailouts.

Take it from someone who was warning, stridently, about Depression-level economic disruption several years before it actually happened: that would have been the good outcome. As awful as it would have been, we would have cleaned out the system and set a good foundation for eventual rebuilding. We've already taken the economic damage, from our ridiculous excess of consumption and debt issuance. The Depression would have revealed it. All we had was a choice between taking the pain in 2008, or playing games with the financial system, not actually fixing anything, and then taking a hell of a lot more of it a decade or so down the line. Pain today, or LOTS more pain tomorrow.... do you treat the cancer, or let it grow? We chose to let it grow.

The real problem is that we have too much debt. At its core, everything else revolves around that simple fact: we have issued too much debt, probably past our ability to repay. Some of that debt showed itself to be unpayable in 2007-2008, and that started the dominos falling.

Our overall systemic response to a choking debt load? Issuing more debt, but this time on the government dime.

Economies are slow, and it will take a good decade or two to fully play out, but that debt has to be repaid. There's no way the economy can grow enough to do so. To avoid the problem today, we took on a much larger one. Above and beyond the explicit debt positions we've assumed, we also opened the spigot on the Treasury for Wall Street to take as much as it can handle. It can now run up enormous public liabilities, gorging itself at the public trough, and then leaving us to clean up the mess. We already are in truly dire straits, and the reinvented financial system, with FNM, FRE, and AIG under government stewardship, is a direct path to fiscal ruin.

A Depression would have been cake, in comparison.
posted by Malor at 7:09 PM on May 3, 2010 [2 favorites]

A Depression would have been cake, in comparison.

This may all be true, but regardless of whether bailouts at the end were right regulation along the way (or more to the point not allowing all of the deregulation that happened since the latter phase of the Clinton administration) would have stopped it happening. It seems to be anything but proof that greater deregulation, let alone free market economics would have helped.

And even if it did in national economic terms, it still leaves the rich getting richer and the poor getting screwed.
posted by opsin at 7:41 PM on May 3, 2010

Myself, I would be thrilled to see these dudes being strung up from lampposts.

The problem here is that the guilty parties end up dead. That's too easy on them after what has gone on.

I would be thrilled to see every asset stripped, including every last bit of clothing they own, and then have them dropped off in say Somalia.
posted by dibblda at 8:28 PM on May 3, 2010

1) Man, now if only the capitalists would believe in free-market capitalism and let their companies fail. Wait, what?

2) As any Chilean citizen will tell you, lessaiz faire capitalism works perfectly if those damn leftists keep their commie noses out.
posted by cthuljew at 8:30 PM on May 3, 2010 [1 favorite]

It's looting on a scale that must have Hallburton slack-jawed with amazement.

And meanwhile, out here in the heartland, an investment advisor is holding a seminar titled AMERICA'S 77 YEAR MOVEMENT TOWARD SOCIALISM. It is unclear whether his scholarship on this topic extends beyond the Glenn Beck show.
posted by dhartung at 8:44 PM on May 3, 2010 [1 favorite]

If we actually let the companies bear the fruit of their terrible decisions, instead of socializing their losses while letting them keep their gains, free market economics would have rid us of those parasites. Don't forget that. That huge crash we almost had, that we spent trillions of dollars "preventing"? That was Mr. Market trying to eliminate bad ideas and bad players from the system. We spent all that money making sure that the free market couldn't do its job.

Good Christ this is just fucking nonsense. Bullshit, fantasy, and nonsense. Moreover, it's exactly the kind of bullshit, fantasy and nonsense that caused this whole problem in the first place. Just don't even.
posted by fleacircus at 1:26 AM on May 4, 2010 [2 favorites]

How so, Fleacircus?
posted by the Real Dan at 12:00 PM on May 4, 2010