Every three years during the Bush administration, America was presented with the slickest and most appealing of Hollywood fare: the Ocean's Eleven series. In 2001, and then again in 2004 and 2007, we were treated to lots of attractive, famous people in fancy clothing surrounded by colorful lights and engaging in witty banter... while stealing unfathomable sums of money. The films, as all heist films do, relied on the simple lie inherent to the genre: the thieves are the good guys. And everyone watched eagerly as they siphoned off millions for themselves.
It is almost as if these movies were designed to enforce a decision made on Capitol Hill two years prior to the first installment: the passage of the Graham-Leach-Bliley Act. Let's set the scene:
* * * * *
The year was 1999, and, just as in the Ocean's movies (those to come and the original of long ago), the story featured a bunch of Rich Men in Nice Suits who wanted to be richer. They came into town looking for the largest casino they could find, hoping to score big.
Now, in the films, Andy Garcia runs the casino, and he at least tries to, you know, stop the thieves from thieving. Similarly, for the last seventy years, the gatekeepers of the nation had stood firmly in the way, upholding regulations such as the Glass-Steagall Act which essentially insured that the casinos of American finance would stay manageable in scope: if one did get robbed, the Strip would not disintegrate into a starry memory overnight.
For some reason, though, Congress, in 1999, did not get this gatekeeping memo. They had no interest in playing the Andy Garcia role, assuming that nobody likes a party-pooper, and managing casinos is boring, not to mention the fact that everyone wants to be Frank Sinatra/George Clooney, or if they can't, they at least want to be his friend, or if they can't, they at least want him to like them. So, our trusty representatives not only welcomed these Rich Men in Nice Suits, but they said, "hey, you know what, let's get rid of that old Act and pass a new one, because, you know, we know what you guys need: a bigger casino. Here, take America."
And they did.
And they had a field day.
The Rich Men in Nice Suits took and took and took, and gambled and gambled and gambled. Now, a lot of the suspense was gone, since there were no guards to fool, no cameras to disable, no, you know, security to, you know, stand in their way.
And everyone got rich.
It was very glamorous.
And it seemed to be working. And lots of people thought they were doing pretty well for a good, long while.
And George Clooney kept coming into their movie theatres and showing them how sexy it was to gamble. And they loved it.
The thieves were the good guys.
There were lots of thieves.
* * * * *
The problem, of course, as we now know, was that people weren't really getting rich. Some were: those who were consistently cashing out and stashing their winnings. But a lot of people were just raking in the chips, and putting those on the line, and then raking in more. They came up with fancy names, like "credit default swaps," which were when a lot of people were borrowing chips from other people, who in turn were borrowing chips from other people, to cover their own lending, without ever discerning whether they could be paid back. Chips were borrowed so many times over that everyone lost track of everything. Another fun thing they did was construct "collateralized debt obligations" out of "sub-prime mortgages," which is a fancy way of saying that chips were loaned out to millions of people who could not afford them, and then other people decided that they would invest in the future paying-back of those chips.
All of America was a giant casino, full of noise and life and color and lots and lots and lots of chips.
Not money. Just chips.
Chips, of course, are not money. And eventually, it turned out that the country, as a whole, was not well-suited to be a casino. All of a sudden, people went to cash in their chips, and found out that they weren't worth anything at all. Too many people had found too many ways to get too many chips, which was absurdly easy, because their were no rules.
The chips had no value.
The casino shut down overnight.
Now, in hindsight, we realize that these people on Capitol Hill had a very, very bad idea. We also realize that George Clooney's movie was a movie, not a lesson. (He does make movies that are lessons, for example, Good Night, and Good Luck, but these are largely ignored by the decision makers.)
So, here we are, duped by the Rich Men in Nice Suits. America spent ten years thinking it was the star of a heist movie; in this movie, thieves became good guys, and everyone was happy.
Nobody stopped to think about the fact that movies end.
27 March 2009
24 March 2009
Also, re: The Press Conference...
The Times points out that foreign policy was virtually untouched at the press conference. Similarly, Obama appeared on Leno on the anniversary of the invasion of Iraq--and this fact was not mentioned in the interview.
I understand that we are in the midst of a domestic crisis. But we spent most of the Bush administration looking outward, only to find out at the very end that things had fallen apart here at home. We can't afford to make the opposite mistake. It's a big world, and we're a small part of it.
I understand that we are in the midst of a domestic crisis. But we spent most of the Bush administration looking outward, only to find out at the very end that things had fallen apart here at home. We can't afford to make the opposite mistake. It's a big world, and we're a small part of it.
Obama's Second Primetime Press Conference
Overall, a pretty strong performance as far as clarity and demeanor.
However, the President's first answer, to a question from Jennifer Loven of the A.P. regarding Secretary Geithner's request for more control over financial institutions, contained a gaping hole in logic that strikes me as both out of character and extremely dangerous. Consider the following statement by Obama:
"Now, understand that AIG is not a bank. It's an insurance company. If it were a bank and it had effectively collapsed, then the FDIC could step in...
I think a lot of people understandably say, "Well, if we're putting all this money in there, and if it's such a big systemic risk to allow AIG to liquidate, why is it that we can't restructure some of these contracts? Why can't we do some of the things that need to be done in a more orderly way?"
And the reason is, is because we have not obtained this authority. We should have obtained it much earlier so that any institution that poses a systemic risk that could bring down the financial system we can handle and we can do it in an orderly fashion that quarantines it from other institutions."
The response is what we have come to expect from Obama: professorial, intended to teach, easy to follow. But, contrary to his usually high standard of logic, this response makes very little sense. First of all, as Obama himself explained on Leno last week, AIG is not simply an insurance company; it is a financial behemoth of nearly unfathomable size and scope. And secondly, his proposal for solving the problem of a company that "poses a systemic risk that could bring down the financial system" treats said company as a given. Obama is offering band-aids, antibiotics, and preventative care as solutions for combating a fatal epidemic; I, personally, would prefer eradication.
What he is basically saying is the following: "We need to be able to regulate too-big-to-fail companies."
What he should be saying is: "We can no longer tolerate the existence of too-big-to-fail companies."
Matt Taibbi drove the point home on Rachel Maddow's show just hours after the above comments were made. He explained in plain terms just how and when insurance companies, investment banks, and commercial banks were allowed to join into unified mega-conglomerates (and choose their own regulators). He outlined what was, in essence, the moment in time when Congress decided it would allow companies to become too-big-to-fail: the passage, in 1999, of the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933.
This Act must be overturned.
I know that Obama's administration is filled with financial insiders whose histories and abilities and affiliations are being questioned. I want very much to give him the benefit of the doubt on said insiders. But it is truly baffling to me how a man of his intellect, no matter what received wisdom is being whispered in his ear by Geithner and Summers, can fail to see the crucial point here: no one company should ever be too vital to fail. It is not enough to try to control these companies. They must, as Taibbi argues (and he cites precedents, too), be disbanded and forbidden from ever again existing.
To allow them to go on is a recipe for further disaster: speculation will always occur; greed will always drive Wall Street; to imagine that the lessons learned today will be remembered tomorrow is foolhardy. We should never knowingly put ourselves in a position that leaves us vulnerable to being held hostage as a nation: not by terrorists, not by hostile foreign governments, and certainly not by our very own companies.
However, the President's first answer, to a question from Jennifer Loven of the A.P. regarding Secretary Geithner's request for more control over financial institutions, contained a gaping hole in logic that strikes me as both out of character and extremely dangerous. Consider the following statement by Obama:
"Now, understand that AIG is not a bank. It's an insurance company. If it were a bank and it had effectively collapsed, then the FDIC could step in...
I think a lot of people understandably say, "Well, if we're putting all this money in there, and if it's such a big systemic risk to allow AIG to liquidate, why is it that we can't restructure some of these contracts? Why can't we do some of the things that need to be done in a more orderly way?"
And the reason is, is because we have not obtained this authority. We should have obtained it much earlier so that any institution that poses a systemic risk that could bring down the financial system we can handle and we can do it in an orderly fashion that quarantines it from other institutions."
The response is what we have come to expect from Obama: professorial, intended to teach, easy to follow. But, contrary to his usually high standard of logic, this response makes very little sense. First of all, as Obama himself explained on Leno last week, AIG is not simply an insurance company; it is a financial behemoth of nearly unfathomable size and scope. And secondly, his proposal for solving the problem of a company that "poses a systemic risk that could bring down the financial system" treats said company as a given. Obama is offering band-aids, antibiotics, and preventative care as solutions for combating a fatal epidemic; I, personally, would prefer eradication.
What he is basically saying is the following: "We need to be able to regulate too-big-to-fail companies."
What he should be saying is: "We can no longer tolerate the existence of too-big-to-fail companies."
Matt Taibbi drove the point home on Rachel Maddow's show just hours after the above comments were made. He explained in plain terms just how and when insurance companies, investment banks, and commercial banks were allowed to join into unified mega-conglomerates (and choose their own regulators). He outlined what was, in essence, the moment in time when Congress decided it would allow companies to become too-big-to-fail: the passage, in 1999, of the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933.
This Act must be overturned.
I know that Obama's administration is filled with financial insiders whose histories and abilities and affiliations are being questioned. I want very much to give him the benefit of the doubt on said insiders. But it is truly baffling to me how a man of his intellect, no matter what received wisdom is being whispered in his ear by Geithner and Summers, can fail to see the crucial point here: no one company should ever be too vital to fail. It is not enough to try to control these companies. They must, as Taibbi argues (and he cites precedents, too), be disbanded and forbidden from ever again existing.
To allow them to go on is a recipe for further disaster: speculation will always occur; greed will always drive Wall Street; to imagine that the lessons learned today will be remembered tomorrow is foolhardy. We should never knowingly put ourselves in a position that leaves us vulnerable to being held hostage as a nation: not by terrorists, not by hostile foreign governments, and certainly not by our very own companies.
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