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Rolling Stone Article

The above is a link to Matt Taibbi's latest article in Rolling Stone magazine on the Wall Street bailout and his view on it's lasting effects on the relationship between government and the financial sector.

A quote:

All of this – the willingness to call dying banks healthy, the sham stress tests, the failure to enforce bonus rules, the seeming indifference to public disclosure, not to mention the shocking­ lack of criminal investigations into fraud committed by bailout recipients before the crash – comprised the largest and most valuable bailout of all. Brick by brick, statement by reassuring statement, bailout officials have spent years building the government's great Implicit Guarantee to the biggest companies on Wall Street: We will be there for you, always, no matter how much you screw up. We will lie for you and let you get away with just about anything. We will make this ongoing bailout a pervasive and permanent part of the financial system. And most important of all, we will publicly commit to this policy, being so obvious about it that the markets will be able to put an exact price tag on the value of our preferential treatment.

Read more: http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104#ixzz2H7QJEDAt
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I'm curious - what do our resident ultra-conservatives think about his arguments?

So often the main title of our political disagreements seems to be pro-government vs. anti-government. Taibbi, certainly a liberal journalist, has never struck me as someone who bought into that narrative but instead writes from the subtext of people vs. big corporations. When government is on the people's side, he sides with government. When it's on the side of Wall Street, he's against government.

So, what does that make him in the lexicon of the modern Foxx News Right? A Marxist?

You raise a fantastic question, H. The Austrians were most certainly on the scene as anti-bailout. The tea party was anti-bailout. Apparently Occupy Wallstreet -- which I ignored so correct me if I'm wrong -- was anti-bailout. Here's a Fox piece I skimmed that I think claims Occupy stole its notes from the Tea Party.

http://www.foxbusiness.com/markets/2011 ... -bailouts/

It looks to me like pretty much everyone is anti-bailout. Everyone seems to agree that bearing the consequences of risk is of the upmost importance for those making the riskiest decisions. So why was there a bailout?

A simple guess might be: Bush bailed out his oil buddies with a war, he'd be inconsistent not to help his "base" on Wall Street with a trillion.

That's easy logic for a liberal to swallow. More challenging: How do you justify bailing out car companies but not justify bailing out Wall Street?

Our financial center is at least as important as car manufacturing. It might have something to do with saving blue collar jobs. But I'm here to tell you, that there are a host of low-paying, working class jobs on Wall Street. I can also tell you that financial companies are offshoring like crazy. An interesting observation of John Bogle's that Analytics shared is that the new elite hedge fund managers are sucking up American wealth. There was a concern that the best and brightest Americans are abandoning medicine, physics, and enginnering to go to Wall Street and make it big. Certainly, it appears that a few of the best brains have done so. Well, if you want to go the formal route, the very best mathematical finance school in the country I've learned is at Columbia University, its placement blows away Chicago's program, bordering on 100%. But the base pay only starts at 50k to 100k+. The Columbia program largely attracts ethnic students, not white American nerds. It's only a few at the very top who are the super rich, and I don't think the opportunities are increasingly extending themselves to "smart" people. The super rich, at one time, lived in Detroit.

So if bailout can't be justified on terms of saving "American jobs", then what else? On the ground the industry is "too big to fail", that failure will be catastrophic for everyone? The lines of division here should be drawn on whether or not one believes markets, or government can best make decisions for the economy. Free-market advocates are free market, until it's their ass on the line, then they're pro-government. Liberals are pro government, until it's the ass of a rich white guy on the line, and then they speak of "bearing risks" and implicitly justify the logic that makes markets work, not government.

According to Warren Buffet, if the government didn't step in, he claims he -- and I assume others -- would have been forced to step in and do something. In my mind, maybe that would have been the best thing? Look at it this way, Buffet got extremely rich not by sheer intellect, but by roughly following the value stock formula of investing over a very long period of time. His ass was saved to, by the government -- what would his stock had been worth had the government not done the bailout? Shouldn't he also bear some risk for so dogmatically sticking to one formula, that he missed the "black swan" when it hit? Had Buffet and a few others been forced to salvage what was left of the financial industry, they days ahead may have been very hard for everyone.

Reading Taibbi's subconscious here, I have to wonder if he sees what I see. Obama "did what he had to do" just like Bush. Well, we've got to keep the economy alive long enough for Obama to go down in history as the man who brought universal health care to America, obviously. Now, who would you rather have an AIG executive reporting to, Obama, who wrote a check with someone else's money and has bought time for his real agenda, or Buffet, who, if he survived the stress, would have just made a bet with his entire wealth. I'm pretty sure Buffet is a major cheap ass already, I can guarantee you AIG execs wouldn't be getting 100,000$ spa vacations on his watch.

Now the big thing is hedge funds. Wall Street is decentralizing, and much of the old guard there has been outsmarted by the new generation. I predict the financial industry, like every other industry, will further stratify into rich and poor. The government helping hand merely ensures that a rich class exists, in this case, mostly operating as offshore entities. There are some good checks against hedge funds, but, with the kind of leverage they run with, there is a good chance one day, if there is another meltdown, the rich will be saved again.

Smart people, like all other people, are not necessary to the New Wallstreet. Ed Thorp got out of hedge funds years ago due to the increased competition. The frontier days are ending. What appears to be necessary to the American government is that there are some very rich people; these people rotate a bit, and the rest of us can be outsourced. In a free market, free trade is a good thing. Outsourcing is a good thing. However, within the free market model of trade is this little footnote called "terms of trade", where the model predicts some protectionism to be necessary for home. Of course, that's for the home economy as a whole, not individual firms whose incentive is the very opposite. What I'm trying to tell you is that, whether we're talking about Wall Street, automakers, or any other industry, those who control the capital have all the incentive in the world to leverage their bets underwritten by YOUR retirements, credit, homes, and kitchen sink, hedge their own skin with bailout promises, and then they have every incentive in the world to outsource everyone but themselves. You're first kicked in the teeth by a bad loan, then the guy who gave you the bad loan gets his ass saved, and then in an economy with less, the guy who got saved, to remain competitive, looks to outsource your job. The government, especially with agenda-driven leadership, have every incentive in the world to keep the big boys rolling, at least when times are really rough and the credibility of one's campaign is at stake. Certainly, the term of Obama would be much harder had the bailouts not happened. We'd all have to sacrafice for better years ahead.

Well, all I can say, Republicans, I hope you enjoyed your war, and Democrats, enjoy your free health care. As for me, the bit of reading I've been doing here and there is souring my vision of America, which was already bad enough and why I've always just ignored politics and don't vote. My career is pretty good at this point, some may even think really good compared to what's out there, but I'm realizing I need to up my game plan and further distance myself from American institutions, get my consulting career online, and from there, take foreign contracts occasionally, which pay boatloads more than American contracts, and have some global mobility.

You bring up a lot of important and interesting points, Gad.

So if bailout can't be justified on terms of saving "American jobs", then what else? On the ground the industry is "too big to fail", that failure will be catastrophic for everyone? The lines of division here should be drawn on whether or not one believes markets, or government can best make decisions for the economy. Free-market advocates are free market, until it's their ass on the line, then they're pro-government. Liberals are pro government, until it's the ass of a rich white guy on the line, and then they speak of "bearing risks" and implicitly justify the logic that makes markets work, not government.

According to Warren Buffet, if the government didn't step in, he claims he -- and I assume others -- would have been forced to step in and do something. In my mind, maybe that would have been the best thing? Look at it this way, Buffet got extremely rich not by sheer intellect, but by roughly following the value stock formula of investing over a very long period of time. His ass was saved to, by the government -- what would his stock had been worth had the government not done the bailout? Shouldn't he also bear some risk for so dogmatically sticking to one formula, that he missed the "black swan" when it hit? Had Buffet and a few others been forced to salvage what was left of the financial industry, they days ahead may have been very hard for everyone.

I would not disagree with anything you said, particularly in the two paragraphs I quote above.

Interestingly, I remembered reading a few articles on past “bailouts” of the US government by the super wealthy. I was able to find this from 2009 which was one of the ones floating around at the time: The Man Who Bailed Out the US and Wall Street. I wonder if Buffet had history in mind when he said that?

Personally, I don't have an ideological problem with the bailout as a mechanism. I also don't have an ideological solution I favor for any kind of long term system for perpetual economic growth nor do I favor any particular political party. If I have an ideological view, its foundation is laid deep on the bedrock of skepticism. It seems more than anything that the very goal of long term US economic growth at high levels is, itself, too vague and ungrounded in principle to be actionable.

Because of my professional background I find myself equating markets to the environmental forces of biology and how resource availability and use impact species populations. It's an uneven comparison I admit, but it works best for me. Observing nature, in a coarse simplified way one sees that unintended consequences of intervention can be devastating...but that systems left to themselves do not become some form of utopian equilibrium in which all species thrive perpetually. Nature is red in tooth and claw and what seems like ecological balance is often an endless series of mini-population explosions and crashes...all teetering on the edge of environmental conditions that could and do change constantly to some degree. Population collapses of some species occur at local levels all the time. The beauty of it is that life is very likely to go on no matter what...but when translated back from it's metaphorical use for economics that doesn't say s*** about what to do for a civilized form of humanity. Actually, it makes me pessimistic about the entire idea of a consumption-based economy having any chance of longevity.

The problems, if we can call them that like we can call aging a problem, are systemic. Liberal or conservative...changing who's in charge is a paint job really.