Economy

Congress, Financial Reform & The Inside Job

warning-toxic


While Congress argues over financial reform, with the fights inevitably fracturing along partisan lines
(again), the radio show This American Life has managed to bring out a perfectly timed show that deals with how one single hedge fund firm made hundreds of millions of dollars for itself while blithely worsening the financial crisis for the rest of us—and how it knew what it was doing all along.

The show is called “The Inside Job.” Here’s the summary:

A hedge fund named Magnetar comes up with an elaborate plan to make money. It sponsors the creation of complicated and ultimately toxic financial securities… while at the same time betting against the very securities it helped create. Planet Money’s Alex Blumberg teams up with two investigative reporters from ProPublica, Jake Bernstein and Jesse Eisinger, to tell the story. Jake and Jesse pored through thousands of pages of documents and interviewed dozens of Wall Street Insiders. We bring you the result: a tale of intrigue and questionable behavior, which parallels quite closely the plot of a Mel Brooks musical.

The musical this debacle most resembles is The Producers–in which the protagonists figure out that they can make much more money on a failed musical than on a successful one. So they set about trying to make the worst musical in the world.

That is basically what Magnetar did. Right as the mortgage market was about to collapse, they forced the creation of billions of dollars worth of the riskiest possible mortgages to package into securities. Since they were betting against those mortgages, it was more profitable if they failed.

Anyway, just listen. This is something that you really ought to hear.


Meanwhile, the LA Times reports that the unemployment numbers are looking very grim. Here’s the opening of the story:

Despite optimism over recent job gains, one grim statistic casts a long shadow over the recovering economy — a record 44% of the nation’s 15 million unemployed have been out of work for more than six months.

And the evidence suggests that many of them may never completely rebuild the working lives they lost.

Never since the Great Depression has the U.S. labor market seen anything like it.

if you think your blood preassure can stand it, read those statistics over again once you’ve listen to the TAL segment.


(NOTE: Lighter blogging than usual, but up to speed again tomorrow.)

21 Comments

  • As fewer and fewer jobs are available, will immigrants continue to come to this country in search of better Life?
    I wonder if there is a downturn in the numbers of undocumented workers coming here. This ties directly in to your last thread Celeste.
    They come here to work and make a better life for their families. Now there are no jobs. Sad.

  • I don’t have links at hand, but I’ve read numerous press reports that confirm the obvious – large unemployment numbers in the US mean less illegal immigration. Which is why the only solution to having our labor markets flooded with “undocumented” workers is to – in tandem with immigration reform that allows families that have established their lives here legal residency and a reasonable path to citizenship – make a Social Security “document” that has at least the integrity of your ATM card necessary to put anyone on a payroll. The jobs that are off the books – casual labor, nannies, etc – aren’t a big issue over the long term. But legal residency or citizenship should be established by an electronic SS card that is at least as hard to forge as the credit cards and debit cards that the economy runs on daily. Illegal immigration would decline to levels that would make even the hysterics calm down. This is elementary, but you can bet your ass pols of both parties who have ties to business groups dependent on illegal labor to skim bigger profits are keeping this from happening. Also, Glenn Beck would claim that an electronic SS card linked to a high-tech data base was a plot of the federal government to round up the Tea Partiers or something. Because, of course, demagogues like Beck don’t want to actually pragmatically solve the problems they use to make millions of dollars by scarifying folks with total bullshit about Obama-as-Hitler, Death Panels, etc. This is a no brainer – but the influence of powerful corporate interests are a drag on real-world solutions. Combined with another Reagan-style window created for folks who have been living here, working, raisiing families and obeying the law, even the ethnic lobbies would not likely oppose such a simple, fair and difficult-to-evade system of employer responsibility via “instant confirmation” of legitmate SS status for payroll purposes.

  • Sorry to go off topic – I was first drawn to the comment which asked the immigration question. The larger labor market picture, lots of illegal immigration or no, is indeed a tougher and more dire problem. Fewer jobs – and that’s MANY fewer – were created during the WBush years than any other President since Hoover. What policies Obama puts forward to clean this one up is going to be the question of the coming decade. Ironically, his education policies – which are generally excellent – are probably as essential as anything to building the labor force that can get itself out of this hole.

  • The simple laws of supply and demand need to be taken into account here.
    If the supply of jobs is decreasing while the demand for a job is increasing, and they keep coming, that is a recipe for disaster.
    Some kind of “card check” or whatever is definitely necessary.

  • For CA, it doesn’t matter if they’re coming from Mexico or Wisconsin. If there are no jobs, CA can’t handle more people from anywhere.

  • But reality affects behaviors. That’s why illegal immigration drops during a deep recession. Of course, the bad news is that the labor market has been growing in precisely the low-wage service areas where illegal immigrants can compete. Recipe for disaster – even among skilled workers – and a guarantee of the kind of brewing resentments that demagogues love to exploit.

    Related to that last thought, there’s this on the inanity and incoherence of the “Tea Party” crowd who are fodder for the ugly, supremely dishonest and self-absorbed Faux Outrage elite – Palin, Beck, Hannity, et.al.:

    http://www.washingtonmonthly.com/archives/individual/2010_04/023348.php

  • “labor market has been growing in precisely the low-wage service areas”

    That’s a reference to long-term trends, not the past two years where every corner of the labor market pretty much sucks.

  • Celeste, hate to beat a dead horse from a previous thread but this is one last point I failed to make in that conversation, regarding gang truces and me being naive…

    Your solution is to get rid of the symptoms that cause gangs?

    Would you mean things like broken homes?

    Poverty?

    Poor schools?

    This is your solution, await these things to end?

    AND YOU’RE CALLING ME NAIVE?

    Just what sign have you seen anywhere in society where any of these things will go away any time, well, pretty much in our lives?

    Yes, I’m sure those things would end gangs, along with many other ills. But we’re going to forgo the idea of truces to await the miraculous day when poverty, broken homes, and poor schools go away? I mean, let’s be honest, what has the better chance of happening first? A gang truce, or flippin’ utopia? Remember, the gang truce in Watts lasted over a decade. It’s already happened. Your Utopian society that would erode the symptoms of gangs? Never in history.

    1) Release all drug offenders. This is something that’s going to have to be done anyway, to prevent the country from going bankrupt.

    2) Declassify gangs as criminal organizations, and end all gang injunctions. Just as the saying goes, if you treat them like animals, that’s how they’ll act. If you call them criminals, why shouldn’t they play the part?

    3) Focus on individual criminals. Law enforcement’s role in this solution should be to weed the individual criminals out of gangs, so that gangs can easier enact their mission of peace and community service. Gang members who simply don’t want a truce, and continue to show intentions of committing violent crimes, should be sought out by law enforcement and arrested. I know a lot of people on the right would say that this would pretty much end my idea, because they’re all criminals anyway, so they’ll all wind up getting arrested. This may be the case at first. But if parts 1 and 2 of my idea were enacted, part 3 would make it all the easier for gang members, particularly older ones, who are thinking about cease fires and truces, to work toward this goal. It would give them more of an environment to do so.

    What’s missing from this, Woody, ATQ, Gava Joe?

    Money.

    For you fiscal conservatives…we haven’t spent one dime yet. In fact, this plan would save tax payer money by releasing drug offenders. The only aspect of this plan I could see spending money on is for oversight of law enforcement, to make sure they’re not circumventing it and carrying on their own agendas from the past. (Come on, Sure Fire, what would a Robbie Thommie comment be if there wasn’t one line in there to piss you off?)

    There are already movements today within the gang community to enact cease fires and truces, visit Streetgangs.com for more information, as that site has links to stories and youtube videos of it. This process of peace is an idea that’s already being worked on by many older gang members. I think the role society at large can play in this is to stop being obstacles to it, via supporting right wing political policies that lead to law enforcement policies and a prison system that has only seemed to perpetuate the problem.

  • On Magnetar, that’s a more blatant example of how Goldman Sachs was able to weather the financial crisis – shorting, i.e. placing bets against the crap “securities” they were, at the same time, marketing to their big customers, including pension funds.

    Some folks should go to jail in the wake of what we’ve seen. I’m not betting they will, but there was willful fraud well beyond Bernie Madoff’s ponzi scheme. Credit rating agencies were putting ‘AAAs” on stuff they knew were garbage. Mortgage analysts knew they would lose their jobs if they didn’t pass most of the garbage loans that were being generated within their institutions. It was a criminal enterprise at many levels. And regulators also need to be held accountable for not shining any light when there were red flags all over the landscape. Unfortunately, all of the perps are still rich and many are still in charge.

  • It should be criminal. Regrettably it’s not. That’s part of the hell of it.

    The truly incredible thing about Magnetar is that they were not only betting against the poisonous securities, they were actually specifically and personally causing them to be created, and at a phenomenal clip, just so they COULD bet on their nearly assured failure.

    Fascinating that it takes freaking This American Life to do the reporting.

  • Yeah, Magnetar was more blatant, but Goldman Sachs is as reprehensible…maybe more because of their Gold Standard Brand. I know some of this stuff isn’t actually criminal according to particular regulatory statutes, but I think the credit rating agencies and anyone selling crap they were shorting ferociously should be treated the same way those folks are who try to snare old people into fraudulent investment schemes. I would stretch as a prosecutor or state attorney general to find some generic fraud or false advertising statute and bring some charges, if only to give this shit an airing.

  • You know, because I – stupidly – didn’t want to panic sell a bunch of bank stocks I had in my IRA and, although we bought at what we saw as a downturn in the housing bubble at the beginning of ’08 using an old-fashioned “vanilla” mortgage and getting a great place for 2/3 of the price when it first was on the market – I’m down well over a hundred thousand dollars because of this shit. And I’m one of the lucky people who were invested or bought homes recently – I’m actually fine in the larger scheme of things and barely scratched relatively. Some people have lost everything or far more than they can afford. But the pricks who were behind it are all still multi-millionaires. IMHO our lamp posts are underutilized in the daylight hours and some of these characters swinging from them would be more than fair.

  • Down over 100k and barely scratched. You’re obviously doing well. Good for you. Here’s to hoping your good fortune continues.

  • Well, that’s because I’m interested in living in the house and not selling it, and we didn’t take out some wack mortgage. Other than a modest chunk out of the IRA, that 100+k isn’t “out of pocket” at this point – and hopefully the balance will shift “in the long run.” A neighbor who bought at high water is just walking away because there’s no way to justify being underwater something like 60%. Of course, that has turned out to be nearly a year of living with no rent and no mortgage because the bank doesn’t want the foreclosure on their books yet. Which is scary if you multiply that probably millions and realize how many bad loans are still out there but temporarily invisible. For us, I’m not exactly happy, but we’re not totally f-ed either. I’ll count my blessings. Glass half-full and all of that.

  • ATQ, even without jobs, which, there are still plenty of manual labor jobs in America where Mexican immigrants are being exploited for their labor, but even without these jobs, America still provides a better life than Mexico.

    I’m not going to rehash some of the ad hominem exchange from yesterday, but “WTF” made a point about how bad Mexico is by posting some of the citizen reports on youtube coming out of Mexico. Even if those Mexican citizens came to America with no intention of working, would they or would they not be in a better place than Mexico?

    The better life is still here. So, if you were making the point that without jobs, Mexicans must be coming here to commit crimes or have some nefarious purpose outside of being upright American citizens…

    Wouldn’t the cartels in Mexico qualify as the same dictators that we went to war with in Iraq? If removing evil dictators is good for us half way across the globe, how about our neighboring country?

    Of course, there is a more rational solution. How about just legalizing drugs? Bye bye to the market the cartels thrive on. Bye bye to about 75% of American gang violence, as well.

    We could start using alternatives forms of fuel, and you can kiss terrorism funding goodbye, too. Bin Ladin didn’t get rich by receiving donations from George Soros and the Hollywood left. As a matter of fact, it was Americans, from the coast to the heartland, who funded him and other middle eastern terrorists with their purchase of gasoline.

    We don’t want to empty the swamp. Instead we just focus on killing the mosquitoes.

  • Empty rhetoric, WTF. Without an electronic SS card that is at least as “21st Century” as your ATM card and tough employer sanctions if they don’t follow the rules when they put people on payroll, laws against illegal immigration can’t be enforced. I don’t think most of the pols yelling about illegal immigration really want to solve the problem. Nor do freakshow characters like Glenn Beck. It’s money in their pocket to demagogue this shit, rather than come up with pragmatic solutions. Deportation or border fences aren’t real-world solutions. The only way to stem illegal immigration is to deal with the source of the problem – employers who see advantage in handing out jobs to anyone, no questions asked. Given that reality, of course folks are going to be drawn here from places like Mexico. Create a data base linked to electronic SS cards and the problem diminishes to near-zero. Yammering about “enforcing immigration laws” without a coherent plan to do it where it might actually matter is like yammering about the “drug war” and assuming that somehow more cops on the street – which we can’t even afford – will put a dent in the availability of drugs. I don’t have a solution to eliminating drugs – although I do have a solution to “drugs as crime” which is an utterly moronic approach – but making it very, very difficult for illegal immigrants to show up on a payroll would solve 80% of the problem. For the record, I’m also against mass deportation of folks who have established their lives here – put a tough new SS card in place along with a Reagan-style amnesty for folks who already have families, jobs here over some number of years.

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