Dylan Ratigan and his colleagues on the CNBC financial program "On the Street" asked a day after the election of Barack Obama: What can Obama do to stem the financial tide (downward)? We will better refer to this downward "financial tide" as the negative domino effect of the deregulated financial markts stemming from the Clinton period through the current Bush period.
Beneath the image of the august, all-knowing group, a graphic read:
"Breaking News! Obama Honeymoon Over, 12th Largest Point Drop in Dow"
What is the implicit statement of cause and effect being made here? Obama's election causes a one-day market decline? Not one of the experts on Ratigan's panel even mentioned the name President Bush, whose policies remain in force and, who, let us recall, is still in office. Eerily, no one mentioned former Bill Clinton administration members Robert Rubin or Larry Summers, the former a "financial guy" with Goldman Sachs, the latter an esteemed academic and economist, both of whom helped dismantle the Glass-Steagall Act, Depression-era legislation which until 1999 (see further down) helped stabilize the banking system, ridding it of the corrupt practices incubated in "modern" legislation they helped foster: the Gramm-Leach-Bliley Financial Modernization Act of 1999 which deregulated the financial world and created the casino world of corrupt Derivatives Markets, Credit Default Swaps, and Collateralized Debt Obligations. Welcome to collapsing markets, particularly you poor folks and struggling middle class folks with shaky loans spinning off of those heady financial instruments.
To reassert: The Gramm-Leach-Bliley Act resulted in a catastrophic deregulation of the Financial Services industry. To his credit Obama had criticized the Gramm-Leach-Bliley Act of 1999 before the dramatic decline of the market:
"By the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.... The regulatory environment failed to keep pace." (Cheyenne Hopkins,"Regulatory Revamp Newest Plank In Obama's Platform," American Banker, 3/28/08)
While we should be worried that Obama is being consulted by Robert Rubin and Larry Summers among others, the suggestion that the market is already "punishing" Obama "policies" is absurd, as those policies are not yet manifest. All the speculation is abstract as it comes during an immature moment in Obama's not-yet-acted-out presidential term. The president-elect has yet to install a cabinet or formulate specific strategies to tie in with his platform. No official, in-office policy stated, yet he's being punished (skilfully manipulated?) by financial pundits already. Phew! Let the rhetoric commence. We suppose you must say something when you get paid to be a Talking Head, even if it formulates to empty rhetoric.
Guy Geldworth, here. I'm back, undercover of the blogosphere, courtesy of Jack Sands.
Yes, I'm still employed in the financial industry, clearly not one of the thriving sectors these days, except for people like me, redirecting assets in accounts with a minimum $2 million. (We're looking for good, largely American companies in any sector with sound fundamentals and are advising our clients to keep 10% cash, 10% gold and hope for the best. It might take a year or two or three...).
"Oh for the deregulated past." You hear words to this effect from under the breath of a few still-misguided colleagues. They don't understand, do they.
Anyway, I took a note way back in September of a facile remark made by CNBC host Dylan Ratigan on his appropriately named "Fast Money" program. I should like to comment on that remark because it bears on the subculture of corruption and demented ethics of "market players" that has currently brought so much pain and confusion to so many of us.
Back then, September 10th, 2008 to be exact, Ratigan on CNBC, the prevailing financial channel on cable television said: "Do we invest in Financials now, or do we wait for the Fanny Mae, Freddie Mac bailout?"
The remark stunned me in its eerie pragmatism, its cynicism. It was delivered to some 300,000 viewers, very select viewers.
No one could quibble with the pragmatism of the thought. It referred to an investment decision, probably a reasonable one, thanks to the American people, who would be subsidizing the bailout. (Technically, we refer to them as the "backstop" in these scenarios. When we totally screw things up, they become the bank. It embarrasses some of us. Not Ratigan, apparently. His version of patrimony: The American people subsidizing a market broken by corruption fostered by a deregulated shadow cast over the land these past twenty years. Bad things occur in the dark.
Very few Americans watch nor can advantage themselves of the advice found on "Fast Money." I therefore feel justified in calling Ratigan's remark cynical.
Most of my colleagues are honest, hard-working fiduciaries. They are as innocent as most, but also just as quiet. That's the state of affairs, folks. Good people these days are just too quiet. Not good for a democracy. There, I said it, and I'm in good company: The Irish poet William Butler Yeats said as much in the aftermath of World War I, a war that killed 8.5 million people and wounded another 21 million. His words described political and social rot that still may apply today, if on a less tragic level than war:
The ceremony of innocence is drowned; The best lack all conviction, while the worst Are full of passionate intensity
Mr. Ratigan and his like seem to be filled with "passionate intensity" and may certainly not be characterized as innocent.
It's true and alarming that the bee population of the United States is diminishing. Bees remain an indispensable component of stable agriculture systems.
It's also a fact that the value of an average American's estate--mostly the equity of his or her home--has diminished precipitously in the last forty years. Now the Federal government will bail out publicly traded firms (privately held) whose toxic debts average Americans will ultimately pay off in a deflationary economy over the coming years. It appears that market players have not been discouraged from gaming the system because they understand 1) they will not be seriously monitored or regulated, and 2) when they ultimately break the bank after taking their gains, the government will step in and help put the game back together.
Remember Savings and Loan "S & L bailout" nearly twenty years ago? According to Timothy Curry and Lynn Shibut, "the savings and loan crisis of the 1980s and early 1990s produced the greatest collapse of U.S. financial institutions since the Great Depression. Over the 1986–1995 period, 1,043 thrifts with total assets of over $500 billion failed. The large number of failures overwhelmed the resources of the FSLIC, so U.S. taxpayers were required to back up the commitment extended to insured depositors of the failed institutions. As of December 31, 1999, the thrift crisis had cost taxpayers approximately $124 billion and the thrift industry another $29 billion, for an estimated total loss of approximately $153 billion." It appears that Americans have a lethal case of political amnesia. Either that, or they are very forgiving, particularly to those who have great wealth and power and who use them as "back stops" (see below) when the casino runs out of money.
It is presently clear that socialism funds capitalism, non market spectators fund the speculators. Great game.
This past September 15th, 2008, the Dow Jones Average lost "only" 500 points. Some remain sanguine. After all, the U.S. economy is a $15 trillion economy. The United States can even absorb a $2 trillion bill for war in Iraq not to mention bailing out the two federally instituted and publicly traded investment Goliaths Fanny Mae and Freddy Mac.
Larry Summers, who together with Robert Rubin (a principal architect of the present Russian economy) helped deregulate the market in the Bill Clinton years. Presently, they feel chastened. "We need regulators regulating risk, transparency not opaqueness. The buyer and seller need equal views of the real price of an asset. Real disclosure, not opacity" they now say. A little late. These insights would have been put to better use when they enjoyed political power.
Prognosticators are saying that we are at the beginning of an economic recession in Europe and Japan with the risk of global recession. Market won't return to equilibrium until 2010, economy in 2011. They might wish to blame "toxic CDO's." Toxic CDO's(Collateralized Debt Obligations from Derivatives) sold by Goldman Sachs and other investment banks in a deregulated market environment(See Glass-Steagall Act) have reached other parts of the globe like viral birds. Politicians and journalists have termed any "bailouts" by tax payers a moral hazard issue. Translation: Deregulated market gamblers who have disrupted the market will be salvaged by the very people they hurt most, average citizens. That is, the people are bailing out capitalists who are gaming the market taking big wins up front until the bubble market collapses. Warren Buffet and others saw this coming. Few listened.
Capitalism is supposed to be a system in which players have the freedom to succeed as well fail according Tom Petruno, market beat writer for the Los Angeles Times. We may ask: Is it also a "moral hazard" to take away one of those "freedoms" from the rich and powerful?
An important bit of history: The Glass-Steagall Act Provisions of the 1930s in the wake of market corruption and the Great Depression prohibited a bank holding company from owning other financial companies. The reason, conflict of interest, too easy to cheat. However, these measures were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, which ultimately passed in the Senate by a 90-8-1 vote, and in the House by a 362-57-15 vote. The bill was signed by President Bill Clinton, but could have been signed by Ronald Reagen or any of the Bush's. Warning: Phil Gramm now counsels "reformer" John McCain on economic matters.
More on the term "back stop": According to Andrew Sorkin of the New York Times, Lehman wanted the the FED (read tax payers) to "back stop" the losses of Bear Stearns, Lehman, Merrill Lynch, Morgan Stanley, Goldman Sacks, which were never depository banks serving common people. Yet common people will "back stop" the failures of these giants whose executives made deca millions and who, with their witty share holders will walk away with many billions of dollars. Bernie Sanders, Independent Senator from Vermont, thinks they ought to help pay for the bail out. What fair-minded person will disagree?
Nevertheless, Morgan Stanley and Goldman are the only two large firms left standing, "back stopped" by the people, uh, government. So...the people do subsidize capitalism--capitalism is socialized. is that be right?! If this is so, how many Americans really understand capitalism as it plays out in America?
Capitalism generally refers to an economic system in which the means of production are all or mostly privately owned and operated for profit. Why not private equity bailing out private players? Clearly, that's not the American way.
Unless the House of Representatives turns down the bill sent to it by the Senate, Secretary of the Treasury Henry Paulson and his boys have the rest of us by the throats. That's a great game they've got going. The plutocrats use ordinary people to save their bacon. Paulson and his cronies got us into this mess, and now, for our own good, we must pay the ransom to salvaging the credit market they helped destroy while getting rich. (Paulson is worth roughly $500 million. It's scandalous, but the bewildered and quietly angry populous does nothing, having forgotten how to participate in a democracy. The capitalists take all the benefits in the form of profits (except for the shareholders who didn't sell in time) and the people get to socialize the losses: public money is put at stake to bail out private gambles in the market largely in the form of exotically packaged derivatives, mortgages placed in the world market as a speculative asset class. When it fails, the lenders get bailed out, not the distressed borrowers who "deserve" to take the hit because they should have "done their due diligence."
Bees don't "do due diligence." They generally work hard and trust that everyone is pulling for the common good. Huh. Silly bees. More truly, silly bee keepers. They're going to lose the hive eventually. As the song goes: "If you're after getting the honey, hey, then don't go killing all the bees."
Bob Pisani of CNBC, who reports from the trading floor of the New York Stock Exchange, said of the plunging market 14 July: "It all began well, but in the end was disappointing because they (equity traders and futures traders)sold into the rally."
A little translation: The news prior to market opening had been that the government (that is you and I and our tax dollars) would infuse capital into the vaults of Fannie Mae and Freddie Mac (The giant U.S. Government-chartered corporations that purchase mortgages from lenders and re offer them to investors as mortgage-backed securities. Together, they hold 50% of the mortgage debt in the country.) That should have inspired buying which would have bolstered the two Fannies. It did, but only briefly.
More Pisani from his blog later: "What happened? Futures were up pre-open, we started strong...and then faded away. It is not a good sign that financials--the very group that was supposed to be helped by the Fannie/Freddie news--are flat to down."
Loyal to the economy, these market traders. "Selling into the rally tells us they expected the news of an up market in the beginning, then took their profits." Is this any way to run an economy? Do these people really care about the hundreds of thousands of Americans who need the help of Freddie Mac and Fannie Mae? "Selling into a rally" is just greed. It has nothing to do with empathy or even a hint of patriotism shown toward less fortunate fellow Americans. It's just selfishly taking advantage. A lot of unethical acts are legal. Not all "selling into rallies" is a bad thing. This one was. If you know someone who profited from selling into today's rally, point the finger.
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