One of my favorite movies is The Sting, a classic where Newman and Redford con bad man Doyle Lonnegan while abiding by the number one rule of fraud – never let the mark know he’s been conned.
During the height of the financial crisis it seemed that the public had suddenly woken up to the fact that the rules for investment banking are designed for bankers to win and the public to lose. It appeared that the public finally noticed that the bubbles, whether they be Savings and Loan crisis (peak around 1989-90), Asian crash (1997), Tech crash (2000), Sub-Prime Mortgage Crisis (2008-9) were not rare events but rather were common events which result in a net wealth transfer from middle class or future generations to a small set of privileged insiders and bankers. The anger swelled and then faded, you see the public has a very short term memory. Sure there was a small blip of annoyance when the bonuses were announced recently but the public collectively shrugged their shoulders as if there was nothing that could be done.
Once again a pulse of public venom has been raised over the Goldman Sachs fraud allegations, especially the selected emails which brag about the fortunes made by fooling investors. We will have to see if Fabrice Tourre becomes labeled as another Maddoff situation…a lone evil genius who fooled everyone. This characterization works well for an audience that understands fictional evil geniuses like Lex Luther and Magneto but it is obvious to all that Enron, Worldcom, Madoff, etc. were not the work of one person but that of a large set of knowledgeable people.
The investment banking world is shuddering right now. Finance plays a critical in the global economy, but in recent times some of its most profitable activities appear to be little more than a fixed card game where the mark may finally have proof that he’s been conned.
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It's very true but this will keep happening as congress and the current and former administration are well aware of what these con artists are doing. AND the people end up having to bail them out while nobody gives a damn when jobs are lost and a person's credit is ruined. It's a dirty con operation that is so huge that they are not even trying to hide their operations anymore.
ReplyDeleteSick but true! Maybe people will need to take it to the streets worldwide until something REALLY changes.
Lin
All the current financial economical, social and health policies are specifically DESIGNED to transfer the wealth away from middle class and the poor.
ReplyDeleteThe media presents this as a work of a few evil geniuses, but systematic cover-ups by the government make one think that there is conscience effort to reshape our society into kleptocratic Ponzi scheme, reinforced by police state.
Great blog. It's a con indeed.
The twist of genius in this plan is it's perpetuality: the marks, as deranged as they are, want this scheme to go on, constantly wishing to join the con artists camp.
THE SHOW MUST GO ON!
Iggy
The sisyphean task of finding balance btw individual opportunity in free markets and legislation controlling behavior harmful to greater society... If only I had bandwidth to pursue research in this; a new model of hybrid social capitalism. Corporate Social Responsibility Depts in MNCs, if only they had teeth. Until we change valuation systems, it's still stockholder returns that rule over the employees actually producing truly useful products/services. It's unconscionable that such an oligarchy exists in the face of rotting public schools, rotten health care systems, rot in the promise of the American Dream... The garbage is ripe! How can we improve the system? Our best-seller lists herald too blaringly of "opportunity within crises." How to institutionalize balance? What can we learn from more egalitarian socio-economically flat countries?
ReplyDeleteCongress isn't trying to stop the scam because they benefit from it short term (campaign contributions, future lucrative jobs as lobbyists or within the industry) and few people take the long term seriously.
ReplyDelete@Iggy Love your point that the marks want to join the con artist club.
@angelina In I-banking stockholder returns are secondary to employee payments, that's one of the problems. Key i-banks such as ML decided to pay themselves (top employees) rather than use the bonus payments to pay down debts or the owners (stockholders)