This is quite a reasonable post-structuralist analysis....
Fraudonomics
Wednesday, April 28,2010
By Mark Ames
. . . . . . .
There was a strange moment last week during President
Obama’s speech at Cooper Union. There he was, groveling
before a cast of Wall Street villains including Goldman
Sachs chief Lloyd Blankfein, begging them to “Look into
your heart!” like John Turturro’s character in Miller’s
Crossing…when out of the blue, the POTUS dropped this
bombshell: “The only people who ought to fear the kind of
oversight and transparency that we’re proposing are those
whose conduct will fail this scrutiny.”
The Big Secret, of course, is that every living creature
within a 100-mile radius of Cooper Union would fail “this
scrutiny”—or that scrutiny, or any scrutiny, period. Not
just in a 100-mile radius, but wherever there are still
signs of economic life beating in these 50 United States,
the mere whiff of scrutiny would work like nerve gas on
what’s left of the economy. Because in the 21st century,
fraud is as American as baseball, apple pie and Chevrolet
Volts—fraud’s all we got left, Doc. Scare off the fraud
with Obama’s “scrutiny,” and the entire pyramid scheme
collapses in a heap of smoldering savings accounts.
That’s how an acquaintance of mine, a partner in a private
equity firm, put it: “Whoever pops this fraud bubble is
going to have to escape on the next flight out, faster
than the Bin Laden Bunch fled Kentucky in their chartered
jets after 9/11.”
And that’s why this SEC suit accusing Goldman Sachs of
fraud is really just a negotiating bluff to give Obama’s
people some leverage—or it’s supposed to be,
anyway—according to the PE guy. He dismissed all the
speculation that the fraud investigations would turn on
other obvious villains like Deutsche, Merrill, Paulson &
Co., the Rahm Emmanuel-linked Magnetar and so on.
“You don’t get it, Ames. Even Khuzami, the SEC guy in
charge of the Goldman case, is a fraud; the fucker was
Deutsche’s general counsel when they pulled the same CDO
scam as Goldman. You have no idea how deep this goes.”
And it’s clear that a lot more people here are aware of
how fundamentally rotten things are but they’re not
willing to face the big fraudonomics bummer yet,
preferring instead to stick with specific accusations.
My position on this was, “Good, throw the book at those
crooks too, I don’t see what the problem is here.”
This was exactly what I argued a week ago, during a verbal
slapfight with that acquaintance of mine. We were making a
scene in a Midtown yuppie restaurant, arguing over just
how much damage Wall Street had caused, and what to do
about it.%u202F
His position was indefensible, and he knew it, so he
switch-
ed tactics:
“OK Ames, which bankers would you throw the book at?
Because you’re arguing that they’re all guilty. So which
ones do you go after? Two of them? Three? Half of them?”
“Every last one of them. Lock ’em up in one of their
private prisons.”
“Not gonna happen, Che.”
“Che? Me? Listen, Scarface, I’m about law and order. Don’t
any of you PE degenerates believe in that anymore?”
“OK, here’s the deal, Che. I’m going to walk you through
this nice and slow so that even an agave-sweetened hippie
like you can understand this. Stick with me, this is gonna
be a little complicated. Ready?” And so he began.
“Let’s say the government decides one day, ‘You know, we
oughta listen to Che here, let’s throw the book at every
firm and every executive that our people can make a case
against. Because you know, gosh, it’s all about rule of
law and blind justice, just like Che says.’ OK, so now
this means indicting just about every serious player in
finance, so they take down Goldman Sachs, they take down
Citigroup, JP Morgan, BofA… and they also serve all the
big funds who are at least as guilty, if not more. So they
shut down Pimco, Blackrock, Citadel… maybe they indict
Geithner and Summers, haul in some of Bush’s crooks…
right?”
“Go on, I’m gonna order some hot, buttered popcorn for
this. Don’t mind me.” I liked what I was hearing so far.
“OK, now guess what you’ve just done? You’ve just caused
the markets to completely tank. Remember what happened
after the Lehman collapse? Remember how popular that made
every politician in Washington? Still wondering why they
coughed up a trillion bucks? They were scared for their
lives; that’s why they voted for that bailout. You’d have
done the same goddamn thing. But if we go after everyone
guilty of fraud and theft, the market crash this country
would see would make 2008 look like Sesame Street. Open
that can of worms labeled ‘Fraud’ and the whole fucking
economy collapses. You may as well prosecute people for
masturbating. No one will know where the fraud
investigation stops and who will be charged next—everyone
will try to cash out, and the markets will tank to zero.
And guess what happens when the markets tank to zero?
Every fucking American with a retirement plan, or an
investment portfolio, or a 401k—every state pension plan
in the country, every teacher’s pension fund, every
fireman’s pension—every last one of them will be wiped
out. That’s what the Lehman collapse taught us.”
“Us? It didn’t teach anything but that this country is run
by maniacs.”
“Jesus H. Christ, you’re even more clueless than the
idiots who managed the Lehman collapse. I mean, didn’t
everyone get it how badly those idiots screwed up with
Lehman? It was the biggest screw-up this hemisphere has
ever seen. You had Secretary Paulson and Fed Chief
Bernanke scratching their asses not knowing what to do, so
then they go, ‘OK, we’re supposed to be a free market
economy, and we’re supposed to be the Republicans—let’s
try something different for a change since nothing else is
working. Let’s go out on a limb and actually give this
“free market” thing a whirl. Who knows? Maybe the “free
market” really works the way we always say it does.
Nothing else seems to work, let’s let the free market
decide Lehman’s fate. Maybe corporate-socialism isn’t the
answer.’ So they hung Lehman out in the free-market, and
BAM! The. Shit. Hit. The. Fan. No shit, dudes—the free
market is for suckers, didn’t your daddy teach you idiots
that? Not only did Lehman collapse—everything collapsed;
confidence in the entire system collapsed. And here’s what
I’m trying to explain to simpletons like you: Our economy
is just a confidence game. Don’t ask me how it got this
way, don’t care.”
I tried saying something insulting to him, but he just
talked right over me. He was on such a roll.
“I’m sure you have the answer, you and Ron Paul and all
the other pot-smoking libertarian do-gooders have it all
figured out. But what I’m saying is, no confidence means
end of the confidence game. That’s what Lehman showed.
Every single player in finance suddenly had to face the
fundamental problem—this whole fucking economy is built on
fraud and lies and garbage. So when Lehman collapsed,
every single player panicked, going, ‘If Lehman was
nothing but a Ponzi scheme—and I know what I’m running is
a Ponzi scheme—holy shit, that means everyone else is
running a Ponzi scheme too! Run for the exits!’ No one
trusted anyone else, everyone pulled out, and the entire
global economy collapsed just like that. And that meant
your parents, my parents, every teacher, every fireman,
every person in the country going into retirement, every
price on every asset—wiped out.
“And here’s what I’m trying to get you to understand: In
the grown-up world, when an entire country’s savings
accounts are wiped out because of some do-gooder and his
law books and his Thomas Jefferson ‘What about free and
fair markets?’ crap, that is a big problem—people don’t
give a fuck about Jefferson and ‘free and fair markets,’
they just want their savings to be worth something. And
people are right: Jefferson was an imbecile. He should
have been a folk singer, not a Founding fucking Father.
But that’s another issue that’s over your head—the point
is, the guy who destroys this economy because it’s ‘the
right thing to do’ will have to flee for his life, and
whatever president or political party was in power when
that decision was made will be out of power for the next
200 years. That’s why Washington panicked and passed ‘the
bailout,’ they didn’t want to be the fools whom all the
Ponzi victims blame for tanking the Ponzi scheme, so they
broke the glass and pumped up a newer, bigger Ponzi
scheme. It was an expensive 14 trillion dollar lesson in,
‘Stay the fuck away from free-market experiments,
assholes!’ How naive are you people to actually believe
that ‘free market’ crap? The problem is when people in
power are stupid enough to listen to guys like you: all
the do-gooder libertarians and the do-gooder free-market
Republicans who forgot that they’re supposed to lie.
Hello!”
“Libertarian, me? Since when was I ever a libertarian?”
“That’s my point: Fools like you don’t even know who you
are anymore. They forgot that they’re supposed to lie
about all that libertarian free-market shit, keep it far
the fuck out of policy. But instead of just lying about
free-markets while secretly propping up Lehman, the idiots
actually tried pulling off a ‘free-market’ miracle, and we
had to pay $14 trillion just to find out what I could have
told them for no fee at all, which is: ‘Hey, assholes,
you’re supposed to be hypocrites, OK? You’re supposed to
be two-faced free-market liars, not libertarian Quakers!
You’re not supposed to believe in anything—your job is to
get up in front of the public and lie about free markets
and the rest. Period.’
“That’s it, how fucking hard is it? Look, watch my face:
Say one thing out of one side... and do the other out of
the other side. Got that? Let everyone else whine and cry
about, ‘Ooh, that’s not fair, ooh, that’s a bailout,
that’s socialism, that’s corruption.’ That’s what losers
do—they whine. You, for example, Che—you whine all the
time, and look at you... Can you pay the bill for this
meal? Is there a libertarian on earth who can afford to
buy a decent meal in Manhattan? And now, look at me: I’m a
hypocrite. Hell yes I am! I lie every day of my life, I
lie to myself in my sleep. Hell, I’m lying to you right
now, in fact I don’t even know what the fuck I’m saying
anymore because I’m so used to lying. And yet—who’s the
guy with the black card? Who’s the one who’s going to pick
up the check tonight? Guys with power, guys like me, we
lie. You got that? ‘Lie’ as in ‘My Lai’ the massacre—as
in, ‘My Lai you long time, me so free-markety.’ You
distract the dumbshits with free-market B.S. because hey,
for whatever reason, that’s what the public likes to hear,
it doesn’t really matter what lie you feed them so long as
it’s the lie that puts them in a trance. And then behind
the scenes, you do the very opposite: You fix the game,
you cover up this problem here with those funds there, you
move shit around, you skim budgets and you subsidize the
system, you cover up the bad shit and once in a while
throw a has-been to the wolves to keep the public
entertained—that’s the way the system works, and anyone
who’s an adult understands that. And everyone who doesn’t
understand that can go form an online libertarian chat
group and complain with all their little libertarian
friends about free markets and Jekyll Island and ‘Wahhh!
It’s not not fair, waahhhh!’”
“What’s with the libertarian accusation?”
“It’s just that you all sound the same to me.
Libertarians, hippies—is there really a difference? You
all whine alike: ‘It’s not fair, man! Ooh! You can’t do
that, it’s fraud, it’s corruption, ooh no!’ Or: ‘It’s the
income inequality, man; Goldman Sachs controls us all man;
it’s socialism for the rich; it’s all too scary for my
retarded 5-year-old libertarian brain!’ Seriously, anytime
I meet libertarians like you—”
“Listen—I’m not a fucking libertarian, OK? I want free
handouts. How clear do I have to make this? Me—handouts.
Me—Big Government. I want to collectivize your productive
cash, because I am a resentful parasite. Are you capable
of processing a single word of what I’m saying to you,
Spaz?”
“Uh-huh, sure, whatever. Here’s the thing: I think it’s
great that you and your friends memorized Road to Serfdom
in between Star Trek episodes—no really, I’m happy for
you. Yeah, we’re all so proud. But here’s the thing: We
grown-ups are really, really busy now trying to sort out
the free-market mess you made with that Lehman move of
yours. Yeah, so why don’t you run along to your
libertarian chat rooms and have your little debates about
Jekyll Island and the gold standard, because it really
means a lot to us. And report back to me as soon as you
have it all figured out, m’kay? Just get the fuck out of
my face and leave the adults alone.”
It got a lot more vicious and personal than this, but when
our verbal slap-fight ended—and he paid the bill—I thought
about what he said, and it made a lot more sense. Fraud
has become so endemic in this country that it’s woven its
way into America’s DNA, forming a symbiotic relationship
that can’t be undone without killing off the host. If they
push it just a little too hard, the entire American
economy could crash, asset values could tank, and that
means tens of millions of extremely pissed off retirees
and Baby Boomers. As the Wall Streeter put it: “Whoever is
responsible for bursting this latest bubble by exposing
all the fraud—and tanking all the markets—will not only be
out of power for at least a generation, but they’ll all
have to get radical reconstructive surgery on their faces
and seek political asylum somewhere remote. No one wants
to be that guy, and that’s why it’s not going to happen.”
That may be true, but all bubbles to eventually burst, all
Ponzi schemes do collapse. The only question is when. For
those of us not on the verge of retiring, the sooner we
have this day of reckoning and get it over with, the
better.
--
Dr Jon Cloke
Lecturer
Geography Department
Loughborough University
Loughborough LE11 3TU
E-mail: [log in to unmask]
Tel: 00 44 07984 813681
On Thu, 29 Apr 2010 18:19:17 +0200
wengraf <[log in to unmask]> wrote:
> I think Allen Scott's warning of the dangers of 'pure
>algebraic economics'
> on the one hand and 'pure consumer-psychologistic
>economics' on the other is
> very important, as is the remark about the removal of
>'economic history' as
> something that economists have to study.
>
> Two points:
> 1) The study of non-strategic individuals and groups is
>one thing.
>
> 2) The behaviour of pseudo-regulatory and corporate
>elites -- as they are
> affected by personal and corporate elite interests -- is
>another. They are
> capable of being studied by institutional-historians,
>looking at the
> behaviour of political policy- and structure- affecting
>groups in their
> strategies for obtaining more 'leverage' and improving
>their balance of
> power/advantage in particular conjunctures. These will
>differ in time and
> place, and so 'potentially-useful abstractions' have to
>be subordinated to
> understanding particular political conjunctures.
>
> 3) The structural conditions of preponderantly 'short
>term' and 'long-term'
> perspectives in different dominant social categories and
>in different
> categories of economic personnel (short-term dealers,
>longterm institutional
> strategists) are capable of investigation, as are the
>interests and
> ideologies that limit their realism.
>
> 4) It may be that heterodox social research (for example
>Green Economics,
> and radical economics and political economy) can
>contribute to thinking
> harder and above all more historically and more
>category-specifically about
> structure and agency. The various work-groups to whom
>this email is
> addressed might usefully learn of each other's
>existence!
>
> -----Original Message-----
>From: A forum for critical and radical geographers
> [mailto:[log in to unmask]] On Behalf Of AJ
>Scott
> Sent: 20 April 2010 20:48
> To: [log in to unmask]
> Subject: Beyond post structuralism???
>
> The following article appeared in "The Guardian" on
>April 5th. Like many
> other critical commentaries on economics and economists
>today, it makes
> several well-taken points about the unrealistic and
>over-formalized
> abstractions of the economics discipline and its
>increasing inability to
> say anything sensible about the state of the world.
>However, a rather
> worrying point (for me) about this and most other
>similar commentaries
> that I have seen is that the critics tend to see the way
>to salvation
> primarily by means of incorporating more subtle
>behavioral/psychological
> insights into economics. This, of course, is fine as far
>as it goes. The
> neoclassical assumptions of perfect information, perfect
>rationality,
> optimal decision-making, and so on, certainly do need to
>be relaxed and
> more realistic-cum-flexible approaches adopted. Even so,
>any conceptual
> improvement along these lines still leaves us with an
>essentially
> behavioral, individualistic, and in the end
>micro-economic "science."
> This leaves the way open, for example, to explaining the
>recent economic
> crisis in terms of "short-sighted greed." In contrast to
>this kind of
> unsatisfactory short-cut, I believe that we need a much
>more
> thorough-going structural analysis that pays attention
>to the underlying
> systemic features of capitalism as an expressive set of
>socio-economic
> dynamics. I suppose I need to add the cautionary note
>that this can
> indeed be done without falling into determinism in the
>strict sense of
> invoking a causal link from social relations to mind.
>It's a long time
> since geographers last openly debated what we used to
>call the
> "structure-agency" problem. It seems to me that the
>current crisis
> raises this issue again (in spades), and that we as a
>discipline need to
> recover some of the ground that we have lost in this
>regard as a result
> of various "post-structuralist" turns. Any reactions out
>there? Allen Scott
>
> *
> *
>
> *
> *
>
> *Rescuing economics from its own crisis*
> *Economists must admit they don't have all the answers
>and learn from
> firefighters, psychologists - and history
> *
>
> *By Larry E**lliott*
>
>For economics, it's like Glastonbury only with better
>food and no mud.
> King's College, Cambridge will host the biggest
>happening for the dismal
> science's counterculture in decades when it hosts the
>inaugural
> conference of the George Soros funded Institute for New
>Economic
> Thinking this weekend.
>
> It's a big gig, spread over four days and with plenty of
>headline acts.
> Joe Stiglitz, George Akerlof, Michael Spence and Sir
>James Mirrlees are
> the four Nobel prize winners performing, along with
>Dominique
> Strauss-Kahn, managing director of the International
>Monetary Fund, Lord
> Adair Turner of the Financial Services Authority and
>Bill White, who as
> the former chief economist at the Bank for International
>Settlements
> presciently identified the flaws in the Great Moderation
>(the apparent
> decline in economic volatility in the years before the
>credit crunch).
>
> The choice of venue is symbolic and deliberate. The
>great and the good
> believe that what has happened over the past three years
>is both an
> economic crisis and a crisis in economics. They want to
>see new thinking
> of the sort provided by Keynes the last time there was
>such a systemic
> shock to the global economy. King's was Keynes's
>college.
>
> The crisis has yet to throw up a new Keynes and is
>unlikely to do so,
> according to my friend and fellow commentator, David
>Smith of the Sunday
> Times, who has just published a thought-provoking book
>on the crisis and
> its likely consequences*.
>
> In reality, though, there is no need to reinvent the
>wheel. It's more
> important to strip away the layers of complexity that
>gave big-picture
> economics a spurious and dangerous exactitude in advance
>of the crisis.
> The big lesson in economics from Keynes is that we know
>less than we
> think we do, and that there is a vast difference between
>the output of
> economic models and the actual behaviour of individuals.
>
> "Our basis of knowledge for estimating the yield 10
>years hence of a
> railway, a copper mine, a textile factory, the goodwill
>of a patent
> medicine, an Atlantic liner, a building in the City of
>London amounts to
> little and sometimes to nothing," Keynes wrote. He was
>unimpressed by
> the argument that decisions were "the outcome of a
>weighted average of
> quantitative benefits multiplied by quantitative
>probabilities".
>
> This, though, is where mainstream economics has ended
>up. It is possible
> to construct beautifully precise models if you start
>from the assumption
> that rational economic agents with perfect information
>are operating in
> free markets that always return to equilibrium. But
>since none of these
> assumptions holds true in the real world, this is a
>classic case of
> "rubbish in, rubbish out".
>
> Even more worryingly, there has been no room in this
>view of the world
> for the heterodox. The prestigious economics journals
>have been cleansed
> of all but the purveyors of highly technical algebra.
>Economic history
> has been removed from the syllabus, because those who
>yearn for
> economics to be a hard science believe the past can
>teach them nothing.
> Truly, the lunatics have taken over the asylum.
>
> The financial crisis has provided Stiglitz, Akerloff and
>the others with
> an opportunity to strike out in a new direction. As
>Smith puts it in his
> book: "Economists, like bankers, discovered they were
>more fallible than
> they thought and for some that was a humbling
>experience. Occasionally,
> that is no bad thing."
>
> There are plenty of suggestions for where the profession
>should be
> heading once it has backed out of its blind alley.
>Speaking at a Greater
> London Authority conference last month, economist Paul
>Ormerod said a
> lesson from physics is that there is kudos to be had
>from empirical
> discoveries. In other words, you don't have to construct
>an elaborate
> model of the economy to be considered good; you could
>draw important
> conclusions from the available data.
>
> An empirical assessment of 250 years of industrial
>capitalism showed
> that violent movements in asset prices and credit
>markets of the sort
> seen in 2007 and 2008 were relatively frequent; those
>who used models to
> assess risk said the chances of a crash were
>infinitesimal.
>
> Nick Parsons, head of strategy at National Australia
>Bank, says he
> learns a lot by talking to his bank's clients and by
>simply observing
> what people are up to. Sir Alan Budd, chief economic
>adviser to the
> Treasury during the recession of the early 1990s, once
>said that he had
> been surprised at how poor the official figures were for
>consumer
> spending given that the shopping malls appeared to be
>full of people.
> Only when he looked more closely and saw that most were
>empty-handed did
> he realise the truth: people were reluctant to part with
>their money but
> still liked to window-shop.
>
> The Bank of England also sees the merits of the
>economics of walking
> around. It has a model of the economy (which is being
>updated and
> simplified) but interest rate decisions are also
>influenced by the
> reports from a string of regional agents who act as the
>eyes and ears of
> the monetary policy committee and provide top-class
>information about
> what is happening on the ground.
>
> At the same GLA conference, Neil Stewart, a psychologist
>at Warwick
> University, said that people make economic decisions
>using
> general-purpose psychological tools. He used the example
>of the minimum
> payments required by credit card companies. The idea
>behind these is to
> protect the minority who otherwise would make no
>repayment, but Stewart
> said there was evidence that they made other consumers
>less likely to
> pay off their bills in full. The perception of consumers
>was that the
> minimum payment reduced the chance of them getting
>seriously into debt,
> and increasing the minimum payment from 2% to 5%
>resulted in fewer and
> fewer people paying off their bills in full.
>
> As the Bank of England governor, Mervyn King, noted in a
>recent lecture,
> economists can learn about how to cope with instability
>from other
> disciplines, such as ecology or epidemiology. The
>approach of engineers
> to limiting the damage caused by avalanches or forest
>fires could be
> imitated to make economies more resilient to shocks.
>Questioning the
> idea of a rational "homo economicus", he added that
>there was evidence
> that perceptions of risk were affected by recent
>experience; actions
> were influenced by what other individuals were doing;
>and that people
> had excessive faith in their own judgments.
>
> Like those gathering in Cambridge on Thursday, King is
>wary of the
> notion that economics can be boiled down to hard and
>fast rules.
> "Beliefs adapt over time in response to changes in the
>environment; and
> this in turn affects how economic systems behave," he
>said. "Because the
> surrounding environment can affect economic
>decision-making, there are
> probably few genuinely 'deep' (and, therefore, stable)
>parameters or
> relationships in economics. In contrast, in many
>settings in the
> physical sciences there are stable 'rules of the game'
>(for instance,
> the laws of gravity are as good an approximation one day
>as the next)."
>
> Is it worrying that the governor of the Bank of England
>freely admits
> that economists don't have all the answers? Not a bit of
>it. There are
> things we know and things we don't. Understanding that
>there is a
> difference is the path to wisdom.
>
> --
> Allen J. Scott,
> Distinguished Professor,
> UCLA,
> Los Angeles, CA., 90095.
>
> Tel.: 310 825-7344
>Fax: 310 206-5976
|
