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Today, one vision of how America works is that it’s an even game, that anybody can get started — just roll those dice; that booms and busts will come and millions of people will lose their homes, millions more will lose their jobs, and trillions of dollars in savings retirement accounts will be wiped out. The question is, Do we have a different vision of what we can do? There’s been such a sense that there’s one set of rules for trillion-dollar financial institutions and a different set for all the rest of us. It’s so pervasive that it’s not even hidden.

Elizabeth Warren, from a new profile in Vanity Fair well worth reading. (via nervousacid)

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A related Warren quote from the Vanity Fair profile:

America had been a boom-and-bust economy going into the Great Depression—just over and over and over, fortunes were wiped out, ordinary families were crushed under it. Coming out of the Great Depression we said, We can build a structure that makes us all safer. And notice, it’s from the end of the Great Depression to the 1980s that we built America’s middle class. That’s when we got stronger as a country. That’s when that big, solid, boring, hardworking, play-by-the-rules group in the middle emerged and defined what America was. You still had the ability to become a billionaire, but the center stayed strong and, notice, provided opportunity for growth, opportunity for getting ahead, opportunity that your kids were going to do better than you did. That was what defined America. And then we started, inch by inch, pulling the threads out of that regulatory fabric, starting in the 1980s.

One more quote. I’m always skeptical of conversion stories. Rhetorically, they’re so effective, so convenient. Writers and politicians and communicators of all kinds know this, and there are time when the I-used-to-believe-in-vanilla-but-the-facts-converted-me-to-chocolate narrative feels like a flagrant sham. But even with a grain of salt, this seems worthwhile:

In 1978, Congress had passed a law that made it easier for companies and individuals to declare bankruptcy. Warren decided to investigate the reasons why Americans were ending up in bankruptcy court. “I set out to prove they were all a bunch of cheaters,” she said in a 2007 interview. “I was going to expose these people who were taking advantage of the rest of us.” What she found, after conducting with two colleagues one of the most rigorous bankruptcy studies ever, shook her deeply. The vast majority of those in bankruptcy courts, she discovered, were from hardworking middle-class families, people who lost jobs or had “family breakups” or illnesses that wiped out their savings. “It changed my vision,” she said.

From then on, Warren would focus her research on the economic forces bearing down on the American middle class.

Having been shut out of the job she wanted in the Obama administration, Warren is running for Senate. Her campaign site is here.

- David Quigg, 10/21/2011

(this post was reblogged from nervousacid)
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2. Pay for your own bailouts. A tax of 0.1 percent on all trades of stocks and bonds and a 0.01 percent tax on all trades of derivatives would generate enough revenue to pay us back for the bailouts, and still have plenty left over to fight the deficits the banks claim to be so worried about. It would also deter the endless chase for instant profits through computerized insider-trading schemes like High Frequency Trading, and force Wall Street to go back to the job it’s supposed to be doing, i.e., making sober investments in job-creating businesses and watching them grow.

- from the “short but powerful list of demands” Matt Taibbi would like the Occupy Wall Street protestors to push.

(via Hannah Miet)

"describing the financial system by describing the holes in it"

fek:

What’s great about The Big Short … is that you realize about halfway through it that it’s a lot like Gone in 60 Seconds: the good guys are, at best, car thieves. That said, they’re still better than the bad guys, who are the worst suckers in the history of suckers. … So while, sans-context, you shouldn’t root for the car thieves/small hedge fund managers who predicted all of this to win, in the scheme of these particular things, how can you not? These guys continued to try and warn everyone off of a financial apocalypse scenario, and when nobody would listen, well, they just pulled the lever and every slot in the house rang up Triple-7s as they told the casinos would happen. It’s a great story.

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I wrote a 6/1/2010 post about The Big Short and quoted from a radio interview Michael Lewis did. (If you follow that last link, you’ll see that there’s way too much throat-clearing in my old post, and you can skip all of it by scrolling down to the paragraph that starts with “The Big Short is superb for the same basic reason Nat Fein’s photo of Babe Ruth’s retirement is superb.”

Here’s why I’m even mentioning my old post: What Lewis said in that radio interview fits with what Foster Kamer wrote above. Lewis told the interviewer …

Why did they see what other people couldn’t see? Why did they see that this market was doomed? And the more I kicked around with them, the more I came to see that their decision to make this bet against the financial system was very deeply rooted in either their experiences or their character or theories about financial markets. And I also came to see that if I could describe these people, I would be describing traits that really should have been present in the financial system that weren’t. It was a way of describing the financial system by describing the holes in it. 

While Foster is at it, he should also listen to this, this, and this and read the original Michael Lewis Wall Street book, Liar’s Poker. Here’s the passage from Liar’s Poker that stuck with me most:

When the firm was a partnership (1910-1981) and managers had their own money in the till, loose controls sufficed. Now, however, the money didn’t belong to them but to the shareholders. And what worked for a partnership proved disastrous in a publicly owned corporation. Instead of focusing on profits, trading managers focused on revenues. They were rewarded for indiscriminate growth.

Just so we’re clear, those words were in a book that Lewis published in the late 1980s.

- David Quigg, 3/25/2011

(this post was reblogged from fek)
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The financial world has changed a lot since I worked in it and the biggest change is more people are playing with more of other people’s money. When most of the banks were partnerships, they had to be in it for the long run because people who were partners were playing with their own capital and taking risk with their own assets.

Emanuel Derman, formerly of Goldman Sachs. (via The Daily Dish)

Reading Derman’s words, I was struck — yet again — by how prescient Michael Lewis was way back in 1989. Here’s page 136 of Liar’s Poker:

“When the firm was a partnership (1910-1981) and managers had their own money in the till, loose controls sufficed. Now, however, the money didn’t belong to them but to the shareholders. And what worked for a partnership proved disastrous in a publicly owned corporation. Instead of focusing on profits, trading managers focused on revenues. They were rewarded for indiscriminate growth.”

Lewis put a finer point on things this year in the closing pages of The Big Short:

“At some point I could not help but ask John Gutfreund about his biggest and most fateful act: Combing through the rubble of the avalanche, the decision to turn the Wall Street partnership into a public corporation looked a lot like the first pebble kicked off the top of the hill. … The main effect of turning a partnership into a corporation was to transfer financial risk to the shareholders. ‘When things go wrong it’s their problem,’ (Gutfreund) said …”

I was touting The Big Short just yesterday to a guy I hadn’t seen in months. He, in turn, had great things to say about 13 Bankers, which I haven’t read yet. A website for that book is here.