13 Bankers

Yesterday on CNBC, economist Steve Liesman and blowhard Rick Santelli were discussing the current state of the economy and Santelli proclaimed "The question isn't how we got here.  The question is the best way to move forward."  Just as George Bush never wanted to play "the blame game" by looking at the screw ups that contributed to 911, Katrina, the War in Iraq, and the financial meltdown, Santelli doesn't care to consider why the economy is in the shape it is today.  The reason is simple, Santelli is an Ayn Rand loving libertarian who thinks that markets should be left free to work without government and he has no interest in discussing the fact that this ideology is precisely what led to the crisis in the first place. 

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson and James Kwak is an excellent book that I would recommend to anyone who wants to understand how we got to where we are.  Simon Johnson is a former chief economist with the International Monetary Fund.  In that role, he had the chance to observe third world oligarchies whose financial systems were looted by government insiders and their cronies.  Before the IMF would assist such countries it demanded real reforms in their banking systems and it required that the costs of those reforms fall upon those who had caused the problems, or at least upon some of those who had caused the problems. In the United States, however, the mega-banks that caused the financial crisis have for the most part emerged bigger and more powerful than ever.

Unlike the third world countries where oligarchies control government policy through corruption, the mega-banks built their power in large part by selling the laissez-faire ideology that less regulation is always better and that any financial innovation that succeeds in the market is necessarily good for the economy.  Of course the revolving door between Wall Street and the regulators combined with generous campaign contributions didn't hurt, but in large measure, Wall Street was allowed do run wild without government interference because the conventional wisdom on both sides of the aisle among Congressman, Senators, regulators, and Presidential administrations was that what was good for Wall Street was good for America.

Melisa Francis: CNBC Twit of the Day 7/24/09

Melissa Francis is my twit of the day for writing off the "high frequency trading" story, as some sort of liberal conspiracy. "High frequency trading" or HFT refers to computerized trading strategies that are automatically executed in order to make pennies or fractions of pennies. It is also known as "program trading." By some estimates, three quarters of stock trading volume on any given day are HFT strategies With the demise of its rivals, Goldman Sachs is the dominant player in the field. Bloggers like Zero Hedge have been focusing on the issue for months. I am not yet convinced that this is quite as big a problem a Zero Hedge thinks it is, but I think he is asking a lot of good questions that don't seem to be getting much in the way of answers. He does get a lot of name calling from CNBC including "idiot" from Charlie Gasparino and "dickweed" from Dennis Kneale.

Today, Francis tried to dismiss the story with "Whenever I see these 'high frequency trade" articles come out, all I think is that someone is calling these reporters and making sure that everyone is on this story because they are looking for more regulation of these markets." (3:30) In fact, the reporters are playing catch up with the bloggers who have been on this story for awhile. Francis and her fellow twits at CNBC have been trying to ignore it as it undercuts their ceaseless cheer leading for Wall Street. Other highlights from the segment include Larry Kudlow nodding at Francis' inanity while saying "Right, right," and lickspittle Rick Santelli calling Kudlow "a top economist.

Larry Kudlow almost got my nod for CNBC's biggest jerk for his blathering in the previous segment (2:05) about Microsoft’s “operating system losing market share big time.” When CNBC tech reporter Jim Goldman tried to correct him, Kudlow shouted “That is factually true, I’m sorry, that is factually true. First of all, how about Mozilla Firefox? . . . When the Justice Depart tried to break them up fifteen years ago, they had a 90% plus market share. That market share is down to 60%. That is a big swing factually.” In fact, Microsoft still controls 91% of the operating system market. It also controls 72% the browser market. It is not just that Kudlow doesn't know the difference between a browser and an operating system that bothers me. It's the fact that CNBC gives him free reign to shout whatever comes into his head regardless of the expertise of the person he is shouting over.

Santelli's Rant on CNBC

CNBC's Rick Santelli is getting a lot of press for his rant about bailing out people with bad mortgages.

Rick Santelli says he is an “Ayn Rander.” He also touts the efficiency and fairness of the trading pits in Chicago as opposed to the unregulated markets that produced the financial meltdown.

What Santelli does not mention is that it was the unregulated markets that were supported and defended by Alan Greenspan who was suckled on objectivism at Ayn’s very own tits. When Congress asked Greenspan about credit default swaps and mortgage securitization, he testified that the markets should be allowed to allocate risks as it saw fit.

The trading pits that Santelli loves function as well as they do because they are heavily regulated. There is a centralized clearing corporation that monitors the positions and transactions of all market participants to make sure that they have sufficient capital to cover risks. All market participants can see what is trading and what the open interest is in all contract classes.

Economist Steve Liesman was correct to point out that the market got us into this problem but that it cannot get us out. Left unsupervised, the players went nuts in the markets for mortgage backed securities and credit default swaps. I don’t know whether Liesman is correct about the government being able to get us out. I hope it can.

Atlas Slugged

I am trying to read Ayn Rand's Altas Shrugged. Since I made fun of the Wall Street Journal's Stephen Moore's last month when he recommended it to every member of Congress, I have noticed a number of allusions to Atlas Shrugged from the market pundits on CNBC. This morning, Rick Santelli openly proclaimed himself a Randian true believer.

While there is nothing surprising in finding Rand fans among CNBC pundits who regularly tout the wonders of free markets and the evils of government, I am curious about the frequency with which I have been hearing her referenced recently. It is possible that they have been making such allusions for years and I just never noticed, but I suspect that there is more to it than that. For one thing, the market failures of the last year have discredited many conservative economists forcing ideologues like Santelli and Moore to cite works of fiction as authority for their views.

I also wonder whether the more frequent references to Rand aren't in part a reflection of the breakdown in the coalition between uber-libertarians and conservative Christians that has powered the Republican party since 1980. I have always thought that it must have been rather painful for fans of Rand's militant atheism and her celebration of "prime movers" to suck up to the anti-intellectualism of the Religious Right. I wonder whether the more open embrace of Rand reflects a loss of patience with the bumpkinism of the Palin wing of the party.

I first tried reading Rand when I was in high school because a couple of guys in the chess club assured me that she was the ultimate font of all wisdom. However, rather than starting with one of her novels, I picked up The Virtue of Selfishness and I got bored with it pretty quickly. A couple years ago though, I caught The Fountainhead on cable and I enjoyed it pretty well. When I ran across a copy that my wife had read for some class in college, I decided to give it a try. I found Rand's prose pretty wooden, but imagining Gary Cooper, Patricia Neal and Raymond Massey delivering the dialogure helped a lot. Unfortunately, Atlas Shrugged is 400 pages longer and I don't have any positive associations to help bring this to life.

I am only about seventy pages in so far and I can't count the number of times that I have cringed in pain at the sledgehammer subtlety with which Rand drives home her themes. I had figured out pretty early that the character of the composer Richard Halley would be a paragon of misunderstood creative individualism like the architect Howard Roark in The Fountainhead. However, Rand takes no chances:

"The music of Richard Halley has a quality of the heroic. Our age has outgrown
that stuff," said one critic. "The music of Richard Halle is out of key with our
times. It has a tone of ecstasy. Who cares of ecstasy nowadays?" said another.

Ouch! Ouch! Alright! I get it, Ayn. I get it! Genius is unappreciated and resented by the masses. It is the one great truth that all high school chess club members understand.