May 18, 2013
Fred Branfman on ‘The Big Short’
Posted on May 6, 2010
“For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well. Middle-income households made less in 2008 than they did in 1999. And the net worth of American households ... has also declined compared with sharp gains in every previous decade since data were initially collected in the 1950s.”
—“Aughts Were a Lost Decade for U.S. Economy, Workers,” Washington Post, Jan. 2, 2010
“Alan Greenspan: Yes, I found a flaw … in the model that I perceived that was the critical functioning structure of how the world works.
“Waxman: In other words you found that your view of the world, your ideology was not right.
—Testimony, House Oversight and Government Committee, Oct. 23, 2008
While I appreciated his honesty (I’d hate to live under the illusion that he was in it for my health), what most struck me was the indignation in his voice. Medicare costs may be skyrocketing and must be controlled to preserve the system. But try to save it by partly reducing doctors’ incomes? “How dare they!” was his clear attitude.
This attitude of entitlement comes across loud and clear in Michael Lewis’ “The Big Short,” whose greatest value is to bring us the insights of those who made hundreds of millions of dollars by betting against, i.e. going “short” on, the unsound subprime mortgage packages peddled by Wall Street titans and blessed by policymakers like then-Fed chief Alan Greenspan.
Lewis’ protagonists, among them Steve Eisman of FrontPoint Partners and Mike Burry of Scion Capital, a one-eyed doctor with Asperger’s syndrome, speak in wonder and disgust of the arrogance of those top Wall Streeters—from Goldman Sachs, Morgan Stanley and Bear Stearns—who knowingly repackaged home loans made to thousands of people who could not afford to repay them, kept rating agencies like Moody’s in the dark about their shoddy content, and then resold them to institutional investors around the world after claiming that the rating agencies had certified them.
Eisman and Burry clearly understood the financial system better than the Alan Greenspans and Henry Paulsons who were supposed to regulate it. When they talk, the rest of us need to listen.
Lewis reports that Burry had been “the first investor to diagnose the disorder in the American financial system. Complicated financial stuff was being dreamed up for the sole purpose of lending money to people who could never repay it. ... To Michael Burry, the subprime mortgage market looked increasingly like a fraud.”
And this is what Eisman imagined saying to those who caused what Ben Bernanke has called “a cataclysm that could have rivaled or surpassed the Great Depression”:
“The upper classes in this country raped this country. You fucked people. You built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience. Nobody ever said ‘This is wrong’.”
It is difficult to disagree with this assessment, given that top Wall Street bankers enriched themselves while throwing millions out of work and homes, bankrupting municipalities and entire nations, and fleecing taxpayers for hundreds of billions in bailout funds. That they have then taken absurdly high bonuses, part of which they use for lobbyists and political contributions so as to gut any attempts to rein in their behavior, is properly seen as a declaration of class war against a majority of Americans.
But it is wrong to see the financial crash of 2008 as an isolated phenomenon of Wall Street rapacity. On the contrary. The mentality behind the financial crisis—that making money is the top priority, and that those who can may do whatever they wish to make more of it—permeates every corner of the top reaches of American society. And even if it can be argued that this attitude was tolerable while the U.S. economy was growing, it will clearly tear this society apart if we have now entered an era of prolonged economic stagnation or even decline. For if so, more for those at the top means less for everyone else—including cardiac care which can determine whether one lives or dies.
The basic fact that none of our leaders dare say aloud—from CEOs to economists to politicians—is that the U.S. private sector and capitalism itself have failed, as well as the government charged with controlling its worst excesses. Greenspan’s admission that free markets have failed was a stunning admission from its greatest proponent. But none—including conservatives calling for a return to the free market, President Barack Obama calling the CEO of Goldman Sachs—whose firm is being sued by the SEC—a “savvy businessman” whose $9 million bonus he does not “begrudge,” and a Congress dependent on Wall Street for campaign contributions— have been willing to even acknowledge the implications of Greenspan’s admission, let alone act on them.
How can anyone in his or her right mind trust today’s pronouncements by economists, CEOs or government leaders when they not only failed to foresee but often actively abetted the worst financial crash since the Depression? The frightening truth is that the U.S. economy today resembles a ghost ship sailing in the fog, the captain’s deck unoccupied, sustained only by its forward momentum and ability to keep bailing water by borrowing trillions and printing money in a desperate attempt to keep afloat.
1 2 3 NEXT PAGE >>>
Previous item: Simon Cowell Beckons Britons to the Polls
New and Improved Comments