01/15/10 Baltimore, Maryland – The public spectacle continues. Bankers appeared in Congress yesterday.
‘Yes…we sold a lot of toxic, explosive stuff to our clients,’ they said.
‘Yes, we used our own money to bet against them…’ admitted Goldman’s top man.
‘Yes, we blew up the whole world economy. We’re sorry.’
Associated Press reports:
“The bankers – whose companies collectively received more than $100 billion in taxpayer assistance to weather the crisis – offered no regrets for executive pay that is now likely to increase as a result of their survival…
“Lloyd Blankfein, the chief executive of Goldman Sachs, took the brunt of the questions, especially on his firm’s practice of selling mortgage-backed securities and then betting against them.
“‘I’m just going to be blunt with you,’ Angelides told him. ‘It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.’
“Blankfein replied: ‘I do think the behavior is improper. We regret the consequence that people have lost money in it.’ Later, though, he defended the firm’s actions as ‘exercises in risk management.’”
This is not the first time we’ve seen this show. We’re not old enough to remember the Pecora hearings of the 1930s. But they shared the same story line: captains of industry and finance make blunders; they cause Great Depression; politicians save the day.
Back in the ’30s, the guys hauled before Congress generally refused blame. They were just doing their jobs. By and large, they were right.
This bunch today is more media savvy. They realize that their power and money come at a price. The feds have to pretend to punish them; they have to pretend contrition.
And the rest of us can only enjoy the show. After all, it’s the greatest show on earth. We love every minute of it. But it’s only entertaining when you understand the real plot.
What’s the plot?
Well, you already know it. After the bubble blew up, the feds swung into action to repair it. But you can’t really fix a bubble…at best you can only create a new bubble.
The real economy is still deflating. Just look at the jobs situation. Far from slowing or stabilizing, 2009 was the worst year yet for job losses – ’07…’08 …and ‘09…each year has produced greater losses. Even James Grant, who predicted a “barn burning recovery” now admits that his forecast has gone up in flames. He was “either early or wrong,” he says.
And just look at the real estate market. “Home prices are softening again,” says David Rosenberg. As for commercial real estate, here’s Kenneth Laub, who’s been in the business for 50 years, as reported by Bloomberg:
“He says the current downturn will overshadow all of the others…
“‘It won’t be a typical part of a cycle where we’re down for two or three years and things recover,’ says Laub, 70, whose New York firm, Kenneth D. Laub & Co., says it has handled more than $40 billion of real estate transactions since its inception in 1969. ‘It will be longer than we’ve gone through before.’
“As in past slumps, the weak US economy is curbing demand for commercial space, increasing vacancies and causing rents and property values to fall. The key difference today is the explosion in debt financing and related derivatives that fueled a run-up in commercial real estate prices in the 2000s, Laub says. That’s left property owners struggling to make mortgage payments. The overhang of debt will delay any recovery, he says.
“‘It’s not a supply-demand thing; it’s an overleveraged condition,’ Laub says.
“Laub expects a wave of restructurings by troubled commercial borrowers as hundreds of billions of dollars of loans come due annually during the next few years. Commercial real estate may still be recovering a decade from now, he says. ‘What you’re going to see is a tremendously long workout period unprecedented in commercial real estate in this country,’ Laub says. ‘That’s where we’re going, and it’s just beginning.’”
Bad property market. Weak employment market. That’s the background. And it will probably last for years – until the extraordinary debt in the private sector has been worked down to more comfortable levels.
Against this natural process of de-leveraging and depression struggle the feds – our heroes…making the situation worse!
Instead of blaming themselves for their silly theories…for causing the bubble with artificially low interest rates…and then failing completely to understand what they had done…they blame Wall Street.
Sure, the bankers, more knave than fool, took advantage of the situation. But they didn’t cause it.
Still, they’re very sorry they almost brought modern civilization to an end…but, hey, business is business…
Oh the roar of the greasepaint…the smell of the crowd! What a circus!
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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…mr.blankfind, can you please explain to the honourable members of this congress just how you do God’s work…?…..well ma’dear, most people don’t know what’s written on the back of the ten commandments so here’s a translation: THE MEATLOAF ON THE NEXT TABLET TASTES SO MUCH BETTER…come to think of it, the gra$$ is always greener on the other side of a fence too!…that’s what we here at geldman saks are all about day and night, i mean…we COULD earn our own money, it’s just that earning someone else’s is so much better….
We’re sorry.’ That simple. Responsibilities, liabilities discharged.
All solved.
God must be smiling all the way to the bank !
I have a feeling when all this is said and done saying ‘I’m sorry’ just ain’t gonna cut it with the torch and pitchfork crowd.
RH
Actually, we can’t put all blame on the bankers alone. It has to be “with the limited resource given, they then choose the best method to steer out – bearing unforeseen circumstances”. On the contrary, national ambition has to bear the “lion share”. Undeniably, any major changes around the world has somehow to do with US influence.
If I am telling you that an agriculture exporter transformed to a net women exporter and then escalated to a major women exporter, what would you have in mind. Normal ? Which is trade of the 21st century ? If so, get those buttocks bar-coded, obtain the certificate of origin,
mark it “native produce of the Far East”.
Voila ! the stuff goes north, east,south and west bound. Finish ! A new cultural revolution has been successfully fought !
Who was at the helm when the transfomation initiated and took place ? Who is to be blamed ? Tin ? Xin ? Wang ?
Ken ? Looo? Chen ? Chiang ? Lee ? Jiang ? Kok ? One has to do some research.
I am speechless.
This is HR 4173, “‘The Wall Street Reform and Consumer Protection Act of 2009.
http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/FinancialRegulatoryReform/111_hr_finsrv_4173_full.pdf
On Section 1701 (ADDITIONAL IMPROVEMENTS FOR FINANCIAL CRISIS MANAGEMENT.) starts on page 436 and on subsection C (FINANCIAL CRISIS MANAGEMENT) talks about unusual and exigent circumstances. Page 437 says “Upon making any determination under this paragraph, with the consent of the Secretary of the Treasury, the Financial Stability Oversight Council shall promptly submit a notice of such determination to the Congress. The amounts made on available under this subsection shall not exceed $4,000,000,000,000.”
Basically this bill allows future $4 Trillion back stop to WallStreet casino.
love means never having to say you’re sorry
unless there’s some money involved
I’m sorry ain’t gonna cut it.
Great post Bill.
I agree with everything you say in this post except:
“Sure, the bankers, more knave than fool, took advantage of the situation. But they didn’t cause it.”
Whoa! you have to be kidding Bill! of course they had something to do with it. You can’t necessarily say one cog in a system is any more important than another if they’re both needed for the machine to work. Its a give and take, you know that. numerous bankers, some portions of the government, real estate speculators, appraisers, agents, people with an itch to make a fast buck, infomercials (a very underrated contributor in my mind), the list goes on. They all feed off of the hype and the wish, and hopefully, the payout. Unfortunately not everyone got to the finish line on that one.
Dude,
I think you are combining cause and effect. I believe Bill is right, the government and the Fed can be attributed with the cause. Wall Street garners the effect.
If no action is taken to hold someone accountable by penalty of a long prison sentence, this smoke and mirrors game is just theatre.
It will repeat itself otherwise.
Nice story, but I think the Circus analogy is less apt than a Puppet Show. But who is puppet and who is puppet master?
Given Angelides’ Calpers’ history of extreme coziness with Wall St, and the evidence from opensecrets.org that Blankfein and buddies are the largest shareholders of Congress Inc. and Obama Inc., it looks to me like Angelides is the puppet.
Do you think he could really ask tough questions of these guys in front of the nation, such as, “How exactly did you orchestrate the scene where Blankfein and buddies gang-raped AIG while the Feds held it down, then walked away and left it crying and dying in the govt’s arms?”
I have a lttle gadget under my TV called thought interpreter which displays in undertitles the thoughts someone is having while speaking on TV in the lower part of the screen. When Angelides was asking his question it read “Come on, Buddies, I have to ask this question and you know why. The show must go on. So don’t take it personal. I am keen to work for Goldman when my career as a poltician ends.”
When Blankfein replied the undertitles read something which isn’t suitable to repeat in public…
By the way, Blankfein’s body language is the same as the body language of the actor Danny DeVito. Did you notice that? Well, I wouldn’t buy a used car from either of them.