Put Blame Where it Belongs

Here's a nice NY Times review of Matt Taibbi's latest book Griftopia:

Among the unfortunate legacies of the financial crisis of 2008 is a tendency among commentators to soft-pedal the outrage over what happened. In too many accounts, blame is considered impossible to assign given the complexities of modern-day finance. Those inclined to point fingers at Wall Street or Washington are frequently derided as innocents who do not grasp how the world really works.

The result is an apologia that goes something like this: Mistakes were made, despite the best intentions of financial professionals. Bankers lent too much money to poor people who never should have bought homes. Models used to measure risk broke down, and regulators were swamped. All of this was a shame, but accidents are a part of life, and an unavoidable part of the swashbuckling style of capitalism that has enriched Americans for generations.

Nonsense, Matt Taibbi says. In “Griftopia,” a relentlessly disturbing, penetrating exploration of the root causes of the trauma that upended economic security in millions of American homes, Taibbi argues that what unfolded was far from accidental. Rather, the nation suffered the equivalent of a hostile takeover of key areas of its commercial life by investment banking houses, while regulators and members of Congress abdicated their responsibilities either because they were influenced by campaign cash or because they believed the fairy tale that unsupervised markets always work best. The result, Taibbi asserts, was a thieves’ paradise — Griftopia.

In the good old days (say 2003) you had to walk the plank if you were caught with your hand in the cookie jar. But in the brave new world of Obama "compromise" you end up with nobody guilty of anything and the ship left steering the same reckless course toward the next bubble and crash.

Here's the sad truth:

Taibbi persuasively dismisses the argument that the financial crisis was caused by poor people with a taste for real estate, delineating how Wall Street eagerly handed out mortgages to anyone with a pulse, and then used the home loans as the material for a far more lucrative enterprise — the exotic investments known as derivatives. The derivatives market depended upon a steady supply of mortgages. But when too many of the bets went bad, Wall Street persuaded the Treasury to construct bailouts that Taibbi describes as a “labyrinthine financial sewage system designed to stick us all with the raw waste and pump clean water back to Wall Street.”

And if you wonder why the commodities market is "overheated" and headed for another 2008 run-up and crash, consider this. I've bolded the key bit:

In Taibbi’s telling, contemporary finance has perverted markets that once served important functions, turning them into frontier-style betting parlors. Futures markets, for example, were created to allow farmers to hedge themselves against fluctuations in crop prices, and were traditionally regulated to prevent investors from amassing holdings large enough to manipulate prices. But over the last two decades, the federal government, at Wall Street’s behest, pared down its rules, allowing speculators to dominate commodities markets. Wall Street then steered pension funds into commodities. This, Taibbi claims, was the real cause of the commodities bubble that sent oil prices soaring to ludicrous heights in the summer of 2008. And now, with many local authorities hurting for cash, Wall Street is increasingly brokering deals that turn municipal facilities like Chicago’s parking meters into investment vehicles controlled by overseas governments — deals that Taibbi presents as a taxpayer rip-off.

And guess what... oil prices are over-heated again. Oh, and Wall Street is recording record profits. Quelle surprise!