I’ve just finished reading Andrew Ross Sorkin’s account of the 2008 Economic meltdown entitled “Too Big To Fail”. Normally, books on the financial system are yawn-inducing but in this thick tome, Sorkin manages to make the chaos of those few months in 2008 come alive as though it were a pot-boiler. The book raises as many questions as it answers but the very real climate of fear and doomsday are ably painted. Little tidbits abound, like the crew who plunged AIG into deep catastrophe was amply populated by veterans of Michael Milkin’s junk bond shop. He went to jail, they moved on. Interestingly, many of the top players atop the Corporate Satrapy came from humble, even impoverished backgrounds, including Goldman Sach’s Lloyd Blankfein. One supposes they never look back.

The Treasury Secretary and the FED’s extraordinary role as merger midwife for our troubled Corporate Financiers is  extensively detailed, including their calls to foreign corporations and governments on behalf of our crumbling private corporations. I never thought I’d live to see the day that our Treasury Secretary or New York FED chairman would consider their job description to include managing the mergers of private corporations out of one side of their mouths as they muttered “moral hazard” and “too big to fail” out of the other.

One telling moment is described as Wachovia and Goldman Sachs were reviewing a possible merger. Former “Goldman Man” (and there are a lot of these in and out of government) Peter Weinberg, an executive with Wachovia is followed as he decides to stroll the hallway of the Goldman Executive floor, looking at the portraits of former top executives. When he came to his grandfather’s portrait, who became partner in 1927, he looked at it for a moment and muttered ” The World really has been turned on its head”. Sorkin points out that the business that was defined by personal relationships and implicit trust was now almost wholly supplanted by leverage and complicated financial engineering. The world of Weinberg’s grandfather had been virtually obliterated in this new Millennium as private firms went public and blithely used shareholders money to make a scale of risky bets that built an enormous bubble that resulted in an unthinkable Government bailout.

It would seem however, that personal approaches are not wholly gone just yet. Time and again, the Treasury, the FED and desperate Corporate Titans made urgent calls to one old man who has had the same assistant for over 30 years and is known to have a fondness still for the old fashioned typewriter. Known as the “Omaha Oracle” , Warren Buffet would be called as a last resort to use his formidable, “value-investing” wealth to rescue the sub-prime junkies.

What this book and the ensuing 24 months have proved to me is that just as we failed to learn from the Junk bond excesses of Milken’s 1980’s or the dry run for the current crisis in the spectacular collapse of Long Term Capital Management in the 90’s, we have still not learned our lesson. Nor, even after staring into the abyss, do we take the notion of “moral hazard ” seriously. As we confront what appears to be an extended deflationary period, many of the Titans who could feel the hot breath of destruction on their necks in 2008 are still around to prime another dose of disaster with our heedless government as backstop and the taxpayer holding the bag.

Personal relationships, long-term value, limits, prudence, regard for building national health through widespread investments of tangible productivity and worth, domestic job growth, these are antiquated concepts now, unworthy of the pursuit of phenomenal wealth enjoyed by the computational technocrats of our global financial industry. For its part, our Federal Government has them on speed dial while the rest of us are on our own. This is the Isolationism we should fear more than any other. Our military is off defending Afghanistan and Iraq from themselves while our Financial Titans are rescued to live another day of utterly neglecting the welfare of the Republic.

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16 COMMENTS

  1. Whilst Andrew Ross Sorkin’s book is well worth the read I think the clinching eye-opener is Michael Lewis’s “The Big Short: Inside the Doomsday Machine.” This book makes it very clear that the “Doomsday Machine” destroying America is a sociopathic Libertarianism engaging in a dysfunctional use of capital through the abuse of the limited liability company.

  2. Perhaps a more succinct description of the modern corporation is that of a former Republican senator, Robert Monks, who described it as being a “killing machine” like a shark:-

    http://en.wikipedia.org/wiki/Criticisms_of_Corporations

    What is even more ironic is that the Tea-Party movement takes its inspiration from the Boston Tea Party incident which was a key catalyst of the American Revolution. This incident was a rebellion against one of the major British government backed “killing machines”, the East India Company, attempting to obtain a monopoly on tea imports into America by killing off the American tea merchant opposition. Now the Tea-Party movement is financed by American “killing machine” corporations and guess what the extent of the movement’s political analysis is confined to the Republican Party’s faux attack strategy of blaming all America’s problems on government and not on the “killing machine” corporations.

  3. Smith,
    There is ample blame enough to go all around the table of big institutions…public and private. Worse yet, the line between public and private is become very blurred indeed. Blaming it all on the Libertarians gives a free pass to other malefactors eagerly boring holes through the dead wood of the lapsed republic. The rot is across the board. Conversely, there are benefits across the board, we’ve just lost sight of them because of our complexity jones.

    “The Big Short” does leave one steamed.

  4. This may be so but I simply see the corporation as institutionalizing the demonic alpha-ape and, of course, it is the corporations who pay the piper (Congress) who plays the tunes we all have to dance to. Even Adam Smith could tell a bad tune when he heard one (“Wealth of Nations”, Book V, Part III, Article Ist, 2ndly, pages 699 to 716).

  5. In the end the moral of both books (“Too Big to Fail.” and the “The Big Short.”) is that institutionalizing a process of allowing a minority (corporation CEO’s) to “externalize” costs to maximize profits will always run the risk of producing a failure of demand ( downward pressure on wages) leading to a recession. When corporation money is allowed to control democracy it will always seek to maintain this institutionalized process.

  6. What about the role of usery? Interest is the great ponzi scheme. Christians and Muslims historically didn’t like interest. Jewish people didn’t charge each other interest only outsiders. Maybe we need some old time religion, such as throwing the money changers out of the temple.

  7. While “external costs” are the wild card in the poker of our economic system, the more comprehensive moral to both books is the perversion of the language of commerce in this financialized era. The models became so arcane and the computerized trading so swift and powerful that nobody could recognize the accumulating hazard even when it stared them in the face. Some did and some even profited magnificently on mining the dysfunction. The bedrock underpinnings of commerce: trust, became sidelined. Rather than investments in tangible contributions to the economy, the driver of the crash was unsecured debt . The Government’s role in the debacle was in anointing consumerism as the a sustainable course and identifying home ownership as the vehicle, heedlessly so and rewarding financial corporations for finding a means to support this in a manner that would spread risk while generating massive returns, until the fundamental weakness of the system inevitably reared its head. In the current consumer paradise, a home is not the hearth, it is an asset as much as a hearth and includes a growing list of consumer products that were also acquired on debt. In Usury We Trust.

    Durable, compounding value is of little interest in this nervous and throw-away age. We may send space ships to the moon but in many ways, we’re simply a high-tech cargo cult. The Corporation merely acts as High Priest for the culture which produces them. The Government, a mainlining money junkie has needle tracks all over the arms it thrusts in our pockets.

  8. I will return to Phillip Blond’s argument that it is a perverted Liberalism, or in its more extreme form Libertarianism, that is the source of our problems. If in the past (and continuing now) between-group conflict over resources drove group selection via identification with the group thereby developing altruism and morality we can see in today’s societies that the ability of capital to be foot loose and fancy free actually weakens group, or society, selection. For demand to be substantially weakened in the United States because capital controlled by an elite has, for example, transferred itself to China (a society still very much in the game of group or society selection) indicates very strongly the root cause of the breakdown of morality in societies such as the United States. In the final analysis what happened on Wall Street was a consequence of extreme Liberalism which is anarchic, undemocratic and immoral.

  9. Good luck with those totalitarian, socially engineered planned economies there Smith, they worked so well in the 20th Century. The bugaboo here is not too much of any one thing, it is an indiscriminate application of mongrel theories resulting in an over-arching mutt.

  11. Here is the Wikipedia definition of “Totalitarianism” up-dated:-

    “Totalitarianism is a political and economic system where the state and the market under the control of a capital controlling class recognizes no limits to its authority and strives to pervade every aspect of public and private life wherever feasible. Totalitarianism is generally characterized by the coincidence of authoritarianism (where ordinary citizens have no significant share in state and market decision-making) and ideology (a pervasive scheme of values promulgated by institutional means to regulate most if not all aspects of public and private life).”

  12. Smith, You seem to have found the concise definition of the current system in your Wikipedia definition of “Totalitarianism”. You might try reading a little Voegelin to more fully flesh out the fundamental background to this specific state. Were it anarchy, it would not have the extensive involvement of the Government and other large freebooting institutions.

    “Libertarians” in their current manifestation are simply one part of the prevailing philodoxic Ochlocracy: Mob Rule By Beloved Opinion. In fact, their voice , though just as determined in its expression as the rest of the noisome mob is generally drowned out by the sainted World Improvers of Gnostic International.

    Blaming the current dystopic carnival on the Libertarians or Socialists or Capitalists or Democrats or Republicans alone is exactly why Ochlocratic philodoxy remains so entrenched and debilitating. The identified culprit suspends the pursuit of reason and we can all congratulate ourselves upon our own , most sainted perfection.

  14. “the” theory eh? As though empathy were a sponsorship. I scanned it but your dare placed a governor on my neurons. Any kind of congruence of reasoned knowledge is virtually impossible in your approach Smith. You seem to want to want to burn down the house to prove there is no roof overhead. While that evil libertarian you are watching holds your attention, every Tom , Dick and Harry of the Prevailing Institutional Bunko is rifling your pockets and congratulating you upon your abiding forbearance.

    But do go ahead and assiduously check your boxes. I’ll attempt another read when your thumb aint grinding my eye.

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