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Radio Appearance: Charles Jaco, Fox News Radio in St. Louis

Appeared on the Jaco Report on Fox News in St. Louis.  We had a good talk about foreclosure fraud, the "automated greed factories," and the dead soul of modern banking:

Richard Eskow Jaco St Louis Fox 10-13-10

Automated Greed Factories: How Soulless Banking Is Crushing the Economy

Two seemingly unrelated stories from the past week illustrate a fundamental problem with today's financial system. While this problem may seem "philosophical" or abstract, it's very real, and we won't put our economy back on a sound footing until we get a handle on it. The problem is this: Banking institutions no longer want to perform the human functions they've performed for a thousand years. Financing has become a robotic form of mass production, designed to generate ever-increasing wealth within an artificial system by draining it from the real world.

In a word, banks have lost their souls.

A recent report blames last May's "flash crash" on software run wild, while the new "robo-signing" mortgage scandal looks a lot like (and is) old-fashioned fraud. The "flash crash," which caused the stock market to plunge 600 points and bounce back within minutes, was computer-driven. In the "robo-signing" scandal the "robots" weren't machines, but bank employees who "mechanically" signed legal statements without checking their accuracy. But both are symptoms of a common disease. They both stem from the banks' insatiable desire to earn the maximum amount of money while expending the minimum amount of effort ,with the least possible real-world interaction. That's led to a mechanized form of banking that's devouring the economy.

Whether it's computerized trading or "robot" bankers, greed is the Ghost in the Machine.

Bankers with soul?

It may sound odd to speak of banks or bankers as having once had "souls." While it's true that they may not have had soul in the same way that, say, Otis Redding did when he sang "These Arms of Mine," financiers have always played a certain human role in the economy. They existed to make sure that capital was available when it was needed, whether it was to outfit sailing fleets for an voyage or plant seeds for next year's grain harvest. While bankers have never been confused with philanthropists, their role in well-functioning economies was clearly defined and useful.

Bankers throughout history lived and worked in the real world. Somebody had to inspect the granaries of ancient Egypt to see if they were full or not. The bankers financing a trading fleet had to meet the ship's captains, inspect the riggings, and make sure there was room in the holds for the treasures of the East. Back then, the money people did whatever they needed to do to see that their money was being safely handled. That's because there were never too many degrees of separation between a bank's money and events in the physical world.

That's changed. For a long time there have been financial transactions that dealt only with other financial transactions, rather than concrete phenomena. But these "abstract" transactions have grown exponentially with the explosion of derivatives and other sophisticated instruments. And it's easy money, comparatively speaking. You won't find anybody from Goldman Sachs inspecting the wheelhouse of a four-masted clipper ship bound for Madagascar.

Automated greed machines

It's natural for anybody, no matter what their level of income, to want the maximum amount of income for the minimum amount of work. This aspect of human nature only becomes a problem when society gives them too much power to indulge that urge. That's exactly what's happening today.

Take automated banking -- or "algorithmic trading," as it's now known. The idea isn't evil -- or if it is, then I have a streak of evil myself. Back in my systems analyst days (the early 1980's) I went to my bosses with a proposal for something similar, just like hundreds of my contemporaries probably did. I was told that it was too risky, and that automation couldn't substitute for human judgement. That was before it had become clear that large financial institutions could count on being bailed out if they got into trouble. That was before the financial sector metastasized to gobble up 40% of the nation's profits, and before the growth of derivatives and similar transactions made the disconnect between "real world" economic activity and non-reality-based financial dealings so extreme.

Today it's a different story: Welcome to the Brave New World. "High frequency trading" -- automated transactions that buy and sell massive numbers of transactions faster than the human brain can react -- now accounts for a reported 73% of all US equity trades. In its report on the "flash crash," the SEC identified six different types of players: "Intermediaries, High Frequency Traders, Fundamental Buyers, Fundamental Sellers, Noise Traders, and Opportunistic Traders." Not a rigging inspector among them ...

A Wall Street Journal article traces the (de)regulatory decisions that helped turn the stock market over to unsupervised computer programs, leading to so-called "dark pools" where trading takes place outside traditional market exchanges.

The house always wins ... and the software runs the house

 

The result is a system of such complexity that nobody really understands how it works. It's a system where computers, and those who own them, don't just react to changing prices: They can control them. These ultrafast transactions also provide an ideal way for traders to engage in "front running," making money by placing trades for themselves a millisecond ahead of those their customers ask them to make. Since the financial market is dominated by a few large players like Goldman Sachs, each of them has enough data to manipulate the market in their own benefit without ever being detected.

(To this day, nobody has explained yet how the four largest banks -- Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase -- went an entire quarter without losing money in their trading operations for even one day. The chances of that happening by chance in a legitimate system are infinitesimal.)

The mortgage market: Incentives to lie (and be lied to)

 

Mike Konczal's introduction to bank mortgage fraud includes a series of charts that nicely illustrate the separation of mortgage-backed securities from real-world economics. His illustration of the transactional layers between a homeowner and a mortgage-backed security shows how remote a trust holding these securities is from the actual banking transaction. What's more, it shows where the incentives exist to lie and exaggerate the value of the mortgages being sold.

Not only have financial institutions lost the incentive to touch and inspect the physical objects (homes) behind their loans, but many of them have had the incentive not to know if they're being lied to. That dovetails perfectly with the incentive that sellers had, which was to lie to them.

As with algorithmic trading, all that mattered was to accelerate the buying and selling process. Traders like Goldman Sachs could make money on each trade, while speculating on the overall outcome to make evey more money. In software terms, the process became the output. As a result, the speed with which these mortgages were bought and sold left the actual chain of ownership to many of these homes in question.

Why bankers become robots

Now that many of these houses are in foreclosure, lazy and fraudulent bankers chose to "robotize" themselves by signing documents for court statements without bothering to verify their accuracy. But these documents were affidavits which, as one of Yves Smith's readers points out, "is a legal document which can substitute for live witness testimony in court ... (requiring) that the witness swears to tell the truth, is competent and has personal knowledge of the facts they are testifying about ... (and) swears to tell the truth by being placed under oath by the notary."

These are not "paperwork errors," as bankers and many compliant journalists have described them. Signing an affidavit when you don't know it's true is a crime. In many cases, the banks had to know the claims in these documents couldn't be proven. In a way, they had no choice but to submit fraudulent documents. Their financial edifice was a house of cards, and without proof of their claims they were forced to add more cards to it. "Robo-signing" was the natural next step, after the "robo-lending" and "robo-betting" that built the house of cards in the first place.

This behavior is the end result of lazy, greedy, non-reality-based banking. It is the ultimate - and probably inevitable - product off a system that has turned banks into factories for the automated production of profits without any connection to the outside world.

The soul of a dead machine

The bankers signing these documents were performing a criminal act. But they were also like Mickey Mouse as the Sorcerer's Apprentice in Fantasia, running harder and harder to keep up with the creatures they had animated to do their bidding. As for the "flash crash," we've been assured that new "circuit breakers" will prevent future calamities. But we've also seen a series of subsequent "mini crashes," including one plunge in aluminum prices that was described as the "Jumpin' Jack Flash mini crash" (after the Whoopi Goldberg hacker movie, not the Stones song.)

How did the system get so irrational, so abstract, so voracious and uncontrollable? Another story this week tells us. The US Senate, acting as swiftly and invisibly as a algorithmic trading program, approved legislation that would have created new hurdles for people trying to protect themselves banks from illegal "robo-signed" documents. After a public outcry the President refused to sign the bill, but its very passage showed how a mechanized banking sector can use campaign contributions and political connections as its robotic arms and legs.

While they've been convincing us how busy and important they are, bankers have actually been doing less and less real work, with less grounding in reality as the rest of us know it. The Soul in the Machine has died, especially at the largest and most powerful banking institutions - the ones that remain Too Big to Fail and Too Inhuman to Live.

Don't just repair the machines. Give them a different purpose.

 

Sure, "circuit breakers" are a good idea, and so are the other reforms many of us focus upon. But while we're all debating the Basel III accord or the "finreg" bill, it's easy to lose sight of the bigger picture. Banking has become detached from human experience and turned into a mechanical, self-replicating function, one that exists only to grow and perpetuate itself.

The real solution is to return banking to its original function as a source of capital for real-life human activities. That means encouraging banks to once again become lenders, rather than merely speculators, while cracking down on all forms of human and "mechanical" lawlessness." Banks can certainly automate themselves, but "cyborg finance" will need to obey Isaac Asimov's Three Laws of Robotics, with special attention to Law #1: "A robot may not injure a human being or, through inaction, allow a human being to come to harm."

I don't disagree with Jon Stokes when he compares the entire stock market to "a single, very big piece of multithreaded software" (in an essay that will be particularly intriguing to geeks like this writer). The only problem with the analogy is that it doesn't go far enough. The entire economy is being driven by software now. Software's only as good as the intentions, knowledge, and wisdom of its programmers. Things aren't going to change until we take the source code back from the people running things now.

As programmers have always said: Garbage in, garbage out.

 

 

The First Domino: Foreclosure Fraud and the "Invisible Bailout"

The foreclosure fraud scandal is a big deal (or a big "effin'" deal, as Joe Biden might say). But its real significance is an even bigger deal. Foreclosure fraud is one domino, and if it falls others will follow. The result could be an end to the "invisible bailout" - the one you never hear about, the one that forces millions of people to subsidize bad lending practices in order to prop up Wall Street.

The invisible bailout is the reason why the government isn't pushing to freeze foreclosures. If the foreclosure process is halted and lending practices are thoroughly investigated, it might eventually force bankers to own up to their own lawlessness - and write down billions of dollars in artificially inflated assets. How are they going to pay themselves record bonuses if that happens?

How much could that cost? One in four US homes is underwater, which means that proper accounting would require a writedown of enormous proportions. And, as the AP reported, "forecasters at John Burns Real Estate Consulting predicted that 41 percent of residential sales this year would be on distressed properties." The banks have been counting on that revenue.

Write down one mortgage in four? Halt nearly half of all home sales?

Now that's a big effin' deal.

To play the game, first place the blame

Ever wonder why so many pundits and politicians keep hammering underwater homeowners as morally reprehensible, while giving bankers a free pass for lending to them? It's because the ongoing success of the bank bailout depends in part on protecting banks from having to account for the billions of dollars in bad loans they generated. How do you do that? By convincing the public that borrowers are the ones who were irresponsible, if not downright criminal, and that they have a moral obligation to pay banks the full value of these loans.

That's the agenda that gets served by pieces like last year's "Homeowner Bailouts Reward Irresponsibility," which singled out real estate flippers and lambasted people who overspent for houses they couldn't afford. But flippers are a tiny percentage of the real estate market, and those people with houses they "can't afford" were told they could afford them ... by the banks!

That's also why so many stories of mortgage fraud singled out homeowners who overstated their incomes or otherwise provided falsified information in obtaining a mortgage. But the FBI - hardly a bastion of socialism - estimated that 80% of mortgage fraud was performed by businesses ("Fraud for Profit") and not individuals ("Fraud for Housing"). Yet homeowners are being stigmatized in order to reduce political pressure to provide them with some form of mortgage relief.

As for the noncriminal loans, which presumably remain the majority of those outstanding, borrowers didn't take them out as part of a nationwide attempt to live beyond their means. These loans were aggressively marketed to homeowners by banks. A lot of people got rich giving out these loans. But our "invisible bailout" policy requires a public belief that homeowners are morally obligated to pay full value on loans written at inflated house prices.

That's where pieces like one written by Fareed Zakaria (and discussed here) were so important. For this argument to succeed, it was necessary to believe that the economic crisis was the result of their "bad habits" and their own native greed. "We ... took out a massive mortgage and financed our fantasies," Zakaria writes.

But who fueled the fantasies? Who offered consumers these mortgages?

Catch-22 for Homeowners

Banks convinced people their homes were worth an inflated amount and persuaded them to borrow against that amount. The "invisible bailout" strategy relies on homeowners to pay them the full amount of that inflated loan, with no penalty to the bank for its role in that transaction. To help homeowners, the government's response has been to lower interest rates. But the banks won't lend money to someone whose collateral is worth less than the value of the loan! (Banks suddenly get religion about a home's real value when it's time to issue credit.)

That leaves homeowners in a Catch-22. Who benefits? The banks, of course. They still collect against the inflated value of the house, and at older, higher interest rates - while pocketing the zero-interest money the Fed is throwing their way.

That's the invisible bailout, and it's worked like a charm ... until now.

Bled dry

Of course, when you're bleeding people like they're meatlocker inventory in a vampire delicatessen you're going to lose some of them. Foreclosures - lots of them - are the cost of doing business this way. But the banks must have decided that it's better to go through the foreclosure process than to write down their stated assets to a reasonable level.

But there's a problem with that. They had themselves quite a little party by swapping these inflated mortgages as securities, but now that the party's over it's getting messy. Nobody knows who owns what, exactly. That left them with a choice: Admit that they can't always trace the chain of ownership, or falsely claim that they had this information when they really didn't.

Remember, if banks admit that they can't prove ownership, then they have to write down a lot of assets. If their lack of information had become known, they might have had to negotiate with homeowners ... for the actual, current value of the home! That's exactly what they don't want to do.

Blackmail on the books

So the banks bluffed it out instead and hoped they'd get away with it. That's a reasonable enough assumption. After all, they've gotten away with so much already. As "Synthetic Assets" points out: "over the past half century the financial industry has not treated the law as a bedrock institution that constrains ... its activities, but rather as a set of rules that can be forced to adapt to the industry's needs and desires."

As long as a financial collapse threatens the entire economy, these bankers understand that the government will retrofit the law to fit their behavior. The alternative would be an economic crisis. (That's why we need to break up the big banks.)

Bankers. Aren't they supposed to know something about managing money?

Mortgage fraud was a huge business in the 2000's, leading to more than a billion dollars in restitutions in 2003-2005 alone (and identified cases were a tiny fraction of the total). Bank assets are loaded down with fraudulently written loans which, if acknowledged, would hit them hard (and make it more difficult for bankers to pay themselves record bonuses again this year).

Then there are the legally obtained but still highly overpriced assets, mostly real estate that's worth much less than what's on the books.

And consider this: We have a massive problem with homes under foreclosure, because bank haste and greed have left them with no clear title. That means it's not clear who owns these houses. We only learned about it through the foreclosure process, but the same title problems must exist for homes that aren't going through foreclosure. We could be looking at millions of homes whose ownership is unclear. No wonder bankers tried to hide the problem with fraudulent affidavits.

The IMF estimated that banks worldwide still needed to write down $550 billion in bad debt - and that was before this problem arose.

Investors hate banks right now, and no wonder. Non-interest revenue has fallen by more than $10 billion since 2007, while this kind of problem will cause their expenses to rise. Banks are trading below book value on the open market, which should be (but won't be) celebrated by the Right as an instance of an informed market making a wise decision. (Only 8% of banks traded below their book value in 2001, and by 2008 that was up to 60%.)

As the IMF says, bankers are running a "very fragile" business. Even with a license to break the law, profits are down and they can't dig their way out of the hole they made. That suggests they're not very good at their jobs. What's the right set of incentives for that kind of record? Record bonuses, of course - even if it means taking a bigger percentage of their reduced profits to do it.

But what they must do at all cost to protect those bonuses is pretend everything's fine. They're not even writing down second liens on homes, which are notoriously over-borrowed. (Did I mention that these guys are giving themselves record bonuses?)

Dominoes

Nobel prizewinner Joseph Stiglitz, who also bears the distinction of having been correct about the housing bubble, thinks it's time for the banks to write down the excess value of these loans. As Stiglitz observes, that will be painful for the banks in the short term, although it would be "nothing in comparison to the suffering they have inflicted on people throughout the rest of the global economy."

But the Administration's reluctant to do that. That's why we heard such tepid remarks from the White House about the foreclosure fraud scandal over the weekend. If the foreclosure fraud issue is pursued too aggressively, it throws 41% of all expected housing sales into question. It raises even more questions about the ownership of millions of loans in good standing, potentially giving homeowners leverage to renegotiate based on the actual market value of their homes. And it reopens the issue of "writedowns."

Illegal submission of foreclosure documents was part of a larger cover-up. People need to be arrested for it - but that, of course, would open up a larger can of worms. The legal process could very well reveal the extent of the title problem, as well as other potentially widespead criminal practices.

Still, that's no reason not to cuff 'em and book 'em. If you can't do the time, don't do the crime ...

Foreclosure fraud is the first domino. If it's tipped over, the "invisible bailout" would end. Banks would no longer be subsidized by American homeowners. Know what that means? Bye-bye, bonuses. Hello, increase in discretionary spending for American consumers. And hello there, new jobs.

Anyone for a game of dominoes?

___________________________________________

This post was produced as part of the Curbing Wall Street project.

(Image via Wikipedia Commons)

 

 

Automated Greed Factories: How Soulless Banking Is Crushing the Economy

Two seemingly unrelated stories from the past week illustrate a fundamental problem with today's financial system. While this problem may seem "philosophical" or abstract, it's very real, and we won't put our economy back on a sound footing until we get a handle on it. The problem is this: Banking institutions no longer want to perform the human functions they've performed for a thousand years. Financing has become a robotic form of mass production, designed to generate ever-increasing wealth within an artificial system by draining it from the real world.

In a word, banks have lost their souls.

A recent report blames last May's "flash crash" on software run wild, while the new "robo-signing" mortgage scandal looks a lot like (and is) old-fashioned fraud. The "flash crash," which caused the stock market to plunge 600 points and bounce back within minutes, was computer-driven. In the "robo-signing" scandal the "robots" weren't machines, but bank employees who "mechanically" signed legal statements without checking their accuracy. But both are symptoms of a common disease. They both stem from the banks' insatiable desire to earn the maximum amount of money while expending the minimum amount of effort ,with the least possible real-world interaction. That's led to a mechanized form of banking that's devouring the economy.

Whether it's computerized trading or "robot" bankers, greed is the Ghost in the Machine.

Bankers with soul?

It may sound odd to speak of banks or bankers as having once had "souls." While it's true that they may not have had soul in the same way that, say, Otis Redding did when he sang "These Arms of Mine," financiers have always played a certain human role in the economy. They existed to make sure that capital was available when it was needed, whether it was to outfit sailing fleets for an voyage or plant seeds for next year's grain harvest. While bankers have never been confused with philanthropists, their role in well-functioning economies was clearly defined and useful.

Bankers throughout history lived and worked in the real world. Somebody had to inspect the granaries of ancient Egypt to see if they were full or not. The bankers financing a trading fleet had to meet the ship's captains, inspect the riggings, and make sure there was room in the holds for the treasures of the East. Back then, the money people did whatever they needed to do to see that their money was being safely handled. That's because there were never too many degrees of separation between a bank's money and events in the physical world.

That's changed. For a long time there have been financial transactions that dealt only with other financial transactions, rather than concrete phenomena. But these "abstract" transactions have grown exponentially with the explosion of derivatives and other sophisticated instruments. And it's easy money, comparatively speaking. You won't find anybody from Goldman Sachs inspecting the wheelhouse of a four-masted clipper ship bound for Madagascar.

Automated greed machines

It's natural for anybody, no matter what their level of income, to want the maximum amount of income for the minimum amount of work. This aspect of human nature only becomes a problem when society gives them too much power to indulge that urge. That's exactly what's happening today.

Take automated banking - or "algorithmic trading," as it's now known. The idea isn't evil - or if it is, then I have a streak of evil myself. Back in my systems analyst days (the early 1980's) I went to my bosses with a proposal for something similar, just like hundreds of my contemporaries probably did. I was told that it was too risky, and that automation couldn't substitute for human judgement. That was before it had become clear that large financial institutions could count on being bailed out if they got into trouble.. That was before the financial sector metastasized to gobble up 40% of the nation's profits, and before the growth of derivatives and similar transactions made the disconnect between "real world" economic activity and non-reality-based financial dealings so extreme.

Today it's a different story: Welcome to the Brave New World. "High frequency trading" - automated transactions that buy and sell massive numbers of transactions faster than the human brain can react - now accounts for a reported 73% of all US equity trades. In its report on the "flash crash," the SEC identified six different types of players: "Intermediaries, High Frequency Traders, Fundamental Buyers, Fundamental Sellers, Noise Traders, and Opportunistic Traders." Not a rigging inspector among them ...

A Wall Street Journal article traces the (de)regulatory decisions that helped turn the stock market over to unsupervised computer programs, leading to so-called "dark pools" where trading takes place outside traditional market exchanges.

The house always wins ... and the software runs the house

 

The result is a system of such complexity that nobody really understands how it works. It's a system where computers, and those who own them, don't just react to changing prices: They can control them. These ultrafast transactions also provide an ideal way for traders to engage in "front running," making money by placing trades for themselves a millisecond ahead of those their customers ask them to make. Since the financial market is dominated by a few large players like Goldman Sachs, each of them has enough data to manipulate the market in their own benefit without ever being detected.

(To this day, nobody has explained yet how the four largest banks - Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase - went an entire quarter without losing money in their trading operations for even one day. The chances of that happening by chance in a legitimate system are infinitesimal.)

The mortgage market: Incentives to lie (and be lied to)

 

Mike Konczal's introduction to bank mortgage fraud includes a series of charts that nicely illustrate the separation of mortgage-backed securities from real-world economics. His illustration of the transactional layers between a homeowner and a mortgage-backed security shows how remote a trust holding these securities is from the actual banking transaction. What's more, it shows where the incentives exist to lie and exaggerate the value of the mortgages being sold.

Not only have financial institutions lost the incentive to touch and inspect the physical objects (homes) behind their loans, but many of them have had the incentive not to know if they're being lied to. That dovetails perfectly with the incentive that sellers had, which was to lie to them.

As with algorithmic trading, all that mattered was to accelerate the buying and selling process. Traders like Goldman Sachs could make money on each trade, while speculating on the overall outcome to make evey more money. In software terms, the process became the output. As a result, the speed with which these mortgages were bought and sold left the actual chain of ownership to many of these homes in question.

Why bankers become robots

Now that many of these houses are in foreclosure, lazy and fraudulent bankers chose to "robotize" themselves by signing documents for court statements without bothering to verify their accuracy. But these documents were affidavits which, as one of Yves Smith's readers points out, "is a legal document which can substitute for live witness testimony in court ... (requiring) that the witness swears to tell the truth, is competent and has personal knowledge of the facts they are testifying about ... (and) swears to tell the truth by being placed under oath by the notary."

These are not "paperwork errors," as bankers and many compliant journalists have described them. Signing an affidavit when you don't know it's true is a crime. In many cases, the banks had to know the claims in these documents couldn't be proven. In a way, they had no choice but to submit fraudulent documents. Their financial edifice was a house of cards, and without proof of their claims they were forced to add more cards to it. "Robo-signing" was the natural next step, after the "robo-lending" and "robo-betting" that built the house of cards in the first place.

This behavior is the end result of lazy, greedy, non-reality-based banking. It is the ultimate - and probably inevitable - product off a system that has turned banks into factories for the automated production of profits without any connection to the outside world.

The soul of a dead machine

The bankers signing these documents were performing a criminal act. But they were also like Mickey Mouse as the Sorcerer's Apprentice in Fantasia, running harder and harder to keep up with the creatures they had animated to do their bidding. As for the "flash crash," we've been assured that new "circuit breakers" will prevent future calamities. But we've also seen a series of subsequent "mini crashes," including one plunge in aluminum prices that was described as the "Jumpin' Jack Flash mini crash" (after the Whoopi Goldberg hacker movie, not the Stones song.)

How did the system get so irrational, so abstract, so voracious and uncontrollable? Another story this week tells us. The US Senate, acting as swiftly and invisibly as a algorithmic trading program, approved legislation that would have created new hurdles for people trying to protect themselves banks from illegal "robo-signed" documents. After a public outcry the President refused to sign the bill, but its very passage showed how a mechanized banking sector can use campaign contributions and political connections as its robotic arms and legs.

While they've been convincing us how busy and important they are, bankers have actually been doing less and less real work, with less grounding in reality as the rest of us know it. The Soul in the Machine has died, especially at the largest and most powerful banking institutions - the ones that remain Too Big to Fail and Too Inhuman to Live.

Don't just repair the machines. Give them a different purpose.

Sure, "circuit breakers" are a good idea, and so are the other reforms many of us focus upon. But while we're all debating the Basel III accord or the "finreg" bill, it's easy to lose sight of the bigger picture. Banking has become detached from human experience and turned into a mechanical, self-replicating function, one that exists only to grow and perpetuate itself.

The real solution is to return banking to its original function as a source of capital for real-life human activities. That means encouraging banks to once again become lenders, rather than merely speculators, while cracking down on all forms of human and "mechanical" lawlessness." Banks can certainly automate themselves, but "cyborg finance" will need to obey Isaac Asimov's Three Laws of Robotics, with special attention to Law #1: "A robot may not injure a human being or, through inaction, allow a human being to come to harm."

I don't disagree with Jon Stokes when he compares the entire stock market to "a single, very big piece of multithreaded software" (in an essay that will be particularly intriguing to geeks like this writer). The only problem with the analogy is that it doesn't go far enough. The entire economy is being driven by software now. Software's only as good as the intentions, knowledge, and wisdom of its programmers. Things aren't going to change until we take the source code back from the people running things now.

As programmers have always said: Garbage in, garbage out.

 

Payday Lenders: How Wall Street's "Undercover Brothers" Exploit Minorities

All the major banking institutions say the right things about race and equality. They all have diversity programs. A few financial industry leaders, like Robert Rubin and Jamie Dimon, even support socially liberal causes. Yet the banking industry covertly uses payday lenders as a "front," a way to prey on minority neighborhoods without getting their hands dirty.

It's a classic Rigged Game: The banks deny normal credit to lower-income people, then profit from usurious forms of alternative credit (or as it's known in economic circles, "fringe banking"). Fortunately, efforts to draw attention to these practices are beginning to have having some effect.

Race and lending

Payday loans hurt all their customers, of course, not just minorities. But studies have shown that payday lenders disproportionately exploit minority neighborhoods with loans that are issued at an average annual interest rate of 455%. The average number of loan each borrower takes out is nine pre year, according to one study, as these high rates lead to a cycle of indebtedness. The loans are secured with the borrower's next paycheck, so only people with jobs qualify. It's a vicious circle, designed by the banking industry to maximize profits at the expense of the economically vulnerable.

This pillaging is taking place against the backdrop of an ever-increasing racial/economic divide. ABrandeis University/Center for Responsible Lending study showed dramatic increases in the economic gap between white and African-American households, as the difference in their financial assets quadrupled between 1984 and 2007.

And that was before the economic crash of 2007. The meltdown drove many low-income wage earners even deeper into debt, and the unavailability of loan modification programs traps them there. The banks also caused the crash and are ensuring that loans can't be modified, which takes the Rigged Game to an even higher macroeconomic level.

Payday lenders: Big banks' predator drones

Payday lenders were originally storefront operations, but more and more belong to highly-profitable chain operations. The payday industry has grown exponentially, thanks to Wall Street funding. As a report from National People's Action and the Public Accountability Initiativedemonstrates, big banks - many of them TARP recipients - are fueling their growth with "financing arrangements, leadership ties, investments, and shared practices." One lender, Advance America, was given $40-50 million in credit to build their business before they had even opened a single location.

By acting as silent partners to the payday lenders, the big banks can exploit lower-income people group with a very unpopular form of lending without tarnishing their own brands. Payday lenders are Wall Street's predator drones, a tool they're able to deploy without putting themselves in danger. That has to change - and it is changing.

Advance America: Caught in the act

What did Advance America do with that money? We know they used some of it to open stores in North Carolina that violated state law, by charging 450% interest at a time when 36% was the legal maximum. (They never admitted wrongdoing, but agreed to pay $18.5 million to settle a class action suit against them.)

Advance America's actions were "your tax dollars at work": It received large chunks of its startup capital from Bank of America, which received $45 billion in TARP funds. Its other major investors were Wachovia and Wells Fargo. Wells Fargo received enormous tax breaks for its acquisition of Wachovia, as the result of a special IRS ruling during the banking crisis. Wachovia and Wells Fargo have also been deeply involved in the laundering of drug cartel money, which means they've profited by promoting yet another social plague.

All in all, big banks provided \more than $1.5 billion in capital to publicly traded payday loan companies, and an estimated $2.5 to $3 billion in total.

Ghetto blasters

American banks have a long and checkered racial history. Government intervention was required to stop "redlining," the practice of denying financial services (or charging more for them) to minority neighborhoods. The biggest banks play a major role in backing auto loans, which studies have also shown to charge higher interest rates to African Americans than Caucasians. HSBC settled a lawsuit accusing it of charging minority borrowers more. Do payday lenders really target minorities? As this study shows, these fringe bankers have disproportionately set up shop in minority neighborhoods. The study, "Race Matters," was conducted in North Carolina, where African-American communities had three times as many payday lenders per capita as white communities, even when adjusted for other factors.

Remember, this is in the same state where taxpayer-assisted banks helped bankroll Advance America. These banks are profiting handsomely from the exploitation of minority communities, behavior they disguise by using payday lenders as their "undercover brothers."

Won't it hurt minorities if payday lenders are shut down?

In a word: No. While this has been a common argument, we now have experience and data on the subject. North Carolina's anti-usury law (the one Advance America violated) has been in place since the law effectively ended payday lending in 2006. A survey was conducted to determine the impact of the law. One key finding: More than twice as many former payday borrowers reported that the absence of these lenders has had a positive effect on their households, rather than a negative one. 

No credible defense

There have been attempts to defend these institutions on the grounds that they provide a service to lower-income communities, but these arguments don't hold water. Jim Hawkins at the University of Houston Law Center made a thought-provoking and intellectually honest attempt, but Nathalie Martin's critique of Hawkins is right on target: In the real world, that's not how these loans play out. Economist Gregory Elliehausen mounted another defense, but it seems clear to me that the three studies I cited here undermine his argument and render his assumptions invalid. (I'd be happy to have more eyes looking at these studies and critiquing both sides of the debate.)

Defenders who suggest that payday loans are designed to help people with one-time cash flow problems should read a study from the University of North Carolina entitled "Payday Lending: A Business Model That Encourages Chronic Borrowing." These lenders know exactly what they're doing when they trap people into a long-term debt cycle at 450% interest. It's a common practice to offer cheap loans to first-time borrowers, for example, to begin the entrapment process. ("50% Off For New Customers! Only $9.31 per $100! ")

The "No, you're the racist!" argument

Oh, some defenders will say, so you would leave these poor and minority people without any access to short-term loans? You bleeding hearts don't really care about them! And you call usracist! (For the record, I don't think these lenders or their big bank funders are racist - they're just profiting from a racially inequitable system.) These payday defenders sometimes even argue that those who would reform the system are the "real racists," because they're implying minorities can't make informed financial decisions for themselves.

First, the North Carolina survey indicates that low-income communities (and even payday loan customers themselves) feel their lives are improved when payday lenders are shut down. That doesn't suggest that a ban on usurious lending would harm them. And the absence of a fair lending system is no defense for an unfair and exploitative one.

Nor is it a matter of second-guessing the borrowers' choices. The key words are are "rigged game," "asymmetrical," and "entrapment." First the banking industry forecloses borrowers' other options (the rigged game). They have no alternatives left once they contact a payday lender. What comes next is a classic example of what economists call an "asymmetrical transaction," where one party has more information than the other. The payday lenders and their big-back financiers understand how the cycle of entrapment works. Most borrowers don't (it's not well-known by the general public), and quickly fall into a spiral of repeated cash flow problems caused by the cost of borrowing - which in turn leads to greater debt. They're trapped into a downward spiral of indebtedness that their exploiters have not only studied, but rely on in their business models.

Everybody loses

It's not just borrowers who lose out in the payday system. The money they give to these institutions in interest payments is taken out of the general economy. Every dollar of interest paid to a payday lender (and its big bank backers) is a dollar that's not spent for food, or clothing, or other goods that stimulate the economy and provide jobs.

Fixing a rigged system

There's a solution for low-income people who have short-term borrowing needs: Provide them with access to credit on reasonable terms. That will either require the big banks to step up - which is reasonable to ask of institutions that benefit from low-cost Federal Reserve money and implicit future government help - or a government program to support credit unions and other low-cost and trustworthy alternatives.

Payday lenders need to be cut off from the lifeline of Wall Street money that's fueling their growth. Fortunately, the big financial institutions are beginning to feel the heat. A report in the Los AngelesTimes suggests that big banks are showing a certain cooling of passion toward their payday lender partners. But the pressure on them must be unrelenting. Citizen action will help (here's a good place to start).

A coordinated program should end the payday lenders' lifeline to easy credit - a lifeline that stretches all the way from the Federal reserve to the "loan store" on a poor neighborhood streetcorner. Other forms of lending should be promoted, along with with effective financial education and advisor programs.

It's time to stop letting the big banks use this rigged game to take advantage of minority Americans and everybody else who walks through their doors, while hurting the economy for everyone else.

Deficit Pipe Dreams: Social Security Cuts Would Increase Inequity and Keep Deficits, Er, High

Get this: Republicans on the Deficit Commission aren't just refusing to consider any tax increases. Now they're proposing tax decreases designed to help the rich while taking benefits from everyone else. Dealing with people like that is like negotiating with somebody who's high on drugs.

Most members of the Commission seem to want a deal -- any deal -- so they've decided not to address the real causes of current and future deficits: health costs, tax cuts, war spending, runaway bankers and the growing inequality between rich and poor. Instead they're going after something that doesn'taffect the deficit: Social Security retirement benefits.

Why? Apparently, because they can.

Today's GOP is so extreme that it's rejecting a framework for Social Security endorsed by Ronald Reagan and Alan Greenspan. (They'd probably call Reagan a socialist if he were alive today.) And some Democrats are playing along.

The Deficit Commission was designed to show the world's financial markets that the US is serious about cutting its debt. Some of its members certainly offered chest-thumping, near-simian displays of "seriousness" when they met today. "It's not going to be easy, it's not going to be fun, and in many cases, it's not going to be popular," said Co-Chair Erskine Bowles. "It is going to require sacrifice."

In response, the markets yawned. They're not worried about US debt. (Only the politicians are.) What's more, the "market" -- usually so beloved by conservatives, but not in this case -- understands that the Commission's unlikely to propose anything that would seriously affect the deficit. When the radical right's driving the fiscal Crazy Train, it can't. So it's Social Security cuts or nothing. (The latter's not impossible. Commissioner Andy Stern said, "There has been absolutely no formulation" of recommendations.)

The reality is the Commission's not going to affect future deficits much either way. But if they're able to push their benefit cuts through Congress, they'll try to have it both ways politically. One the one hand, they'll insist that they're "only doing this to protect the program for future generations" and not to reduce the deficit. On the other hand, they'll also try to take credit for... reducing the deficit. Then they'll wait in vain for the financial markets to reward them for it.

Despite the fiscal illogic, Social Security cuts will in fact be both "easy" and "popular" in the high flying world where commissioners like Erskine Bowles reside. For Alan Simpson, they may even be "fun." And only the people they never see -- the ones who worked all their lives and paid their payroll takes -- will be called upon to "sacrifice."

To understand how wrongheaded they are, it's important to know what's really driving the deficit and what created the current mild imbalance in Social Security.

This is your budget. This is your budget on drugs.

Most people (even skeptics like me) assumed that, even in the worst-case scenario, the Budget Commission would try to temper the impact of its proposed cuts with a few symbolic tax hikes. Even if the increases were so tiny they were practically homeopathic, they'd have to do somethingfor appearance's sake. That's what makes reading a news report like the one in today's Talking Points Memo so... so... hallucinogenic.

I know, I know: That's hardly a somber, analytical word. But, honest to God -- if you understand the numbers at all, reading a sentence like this will make you feel like your coffee's been laced with peyote. From Talking Points Memo:

"Republicans have not even said that we should get any revenue from taxes," the source said. "Even tax expenditures. They appear to want to use the savings on tax expenditures to cut corporate taxes."

You read that right: "Deficit" commissioners who won't allow any new tax revenues. Oh, they'd cut benefits for the elderly, alright, but they'd use the money to reduce corporate taxes -- and capital gains taxes, too. That will make the deficit worse and it will widen income disparity, further enriching the wealthy by cutting benefits that lower- and middle-income people paid taxes to provide all their lives. That's what passes for fiscal sanity in the econo-millenarian saucer cult the Republican Party has become. And that's how a nation that's already radically redistributed its wealth upward could do it even more.

Here's what Republican Sen. Judd Gregg, a member of the Commission, said today: "I think everybody understands that the majority of the issue is on the spending side, and so this commission, to the extent that it reports, I suspect is going to have a heavy tilt toward controlling spending."

But the GOP has ruled out cuts to the military or homeland security. That narrows the "spending" side of the equation down to about one-seventh of the budget. That brings us right back to raising taxes. The GOP response? "We need to change the conversation," said Sen. Bob Corker, "and I think that means focusing on the big picture first... agreeing on the amount of spending we can sustain."

"Changing the conversation," aka "changing the subject," is probably Corker's best bet. Because the deficit was really caused by this:

(source: Center for Budget and Policy Priorities)

That's two wars (which the GOP wants to continue), Bush-era tax cuts (which the GOP wants to expand to benefit the ultra-wealthy even more), and the direct and indirect costs of a crash brought on by inadequate banking regulation that enriched many of the same ultra-wealthy (the GOP is resisting all attempts to increase banking regulations.)

When it comes to deficits, the GOP is the problem, not the solution.

Sure, Social Security's a big-ticket item. But it's self-funded. If we went back to Reagan era principles, it would be fine. There's not much out there to cut, proportionally, except health-care spending. Our health-care costs are far above those of other developed nations and give us much poorer results. What if we could get our health spending in line with countries like Canada, the United Kingdom, or Germany? Thanks to Dean Baker at the Center for Economic and Policy Research, we have the answer:

Blindsight: Economics, Country Music, Tea Parties, and "Third World America"

Last November, when the Tea Party Express was just building up a head of steam, it seemed worthwhile to stop for a minute and listen to a country song. Why? For one thing it's a really good song, and it had a great hook. "Here in the real world," it says, away from those powerful guys in Washington and New York, "they're shuttin' Detroit down."

That theme was so inclusive and compelling that conservative singer John Rich (John McCain's campaign troubadour) was able to get noted lefty Kris Kristofferson to act in the video, along with Mickey Rourke. That made the song important and interesting. How was John Rich's message able to win over those guys? Because it was simple and true: The people who got us into this mess are doing just fine, and the people who worked hard and played by the rules aren't. What concerned me back then was that this message, while compelling and accurate, could wind up benefiting some of most bank-friendly politicians on Earth. The Republicans who deregulated banking (along with centrist Democrats) could wind up with more power. They'd then be in a better position to carry out their agenda of blocking the modest banking reforms and economic fixes being recommended by the White House and Congress.

Isn't that pretty much what's happening?

Reading Arianna Huffington's new book Third World America made me think of that song again. There's a medical phenomenon called "blindsight," where people who seem to be partially or completely blind are able to respond to visual information under test conditions. The theory is that they're not blind at all, but are unable to consciously process the information they're receiving from their eyes. Isn't that what's happening in the country right now? Most people aren't economists or policy wonks, after all, so they probably haven't "seen" this chart:

(source)

But on some level they know it. And they may not have seen this chart, either (from CBS Moneywatch via Mike Konczal), but you can bet they "know" it too:

People need ways to integrate and process all the information they're receiving. They're struggling with the cognitive dissonance they experience when they're told the economy's doing better, because they know that in their world it's not. Human beings have always used stories and songs to integrate the information they receive, and we need better stories and better hooks than we've been getting lately.

Know what's a good hook for these troubled times? "Third World America." Know what's not? "Recovery Summer." So score one for Arianna before the cover's even cracked. The "recovery summer" theme was bound to ring false for the millions of Americans who still live in a devastated economy. That was destined to reduce the credibility of the very institutions that prevented even greater damage - institutions that could do more to help them.

We've seen the Administration move toward a more coherent narrative in the last week, but will it be enough? "I ran because I felt that we had to have a different economic philosophy in order to grow that middle class and grow our economy over the long term," the President in Friday's press conference. That sounds like a story worth telling.

Third World America is direct and clear in its message: Decades of aggressive corporate lobbying, driven by bankers and other large corporations, have led to a series of policy decisions that are eroding the American standard of living. The details are all there: The financial industry's gone from 2.5% of our GDP in 1947 to 8.3% right before the meltdown. Financial profits went from a maximum of 16% between 1973 and 1985 to 41% right before the crisis hit. And rather than being chastened by their failure, or disciplined by taxpayers in return for being bailed out, bankers have embraced their old ways with enthusiasm. Meanwhile the American households that rescued them lost $13 trillion in wealth between mid-2007 and March 2009.

There has been, in economist Simon Johnson's words, a "quiet coup" led by a classic "oligarchy." Bankers now exert enormous control over both the economy and the political process. People see that, and they're angry. Anyone who wants to discuss the current state of affairs better be prepared to speak plainly - "third world America," "quiet coup," "oligarchy" - or they'll be ignored.

Some of us are actually old enough to remember when the American dream was at its peak. Even if you were just a kid, you knew certain things: If you worked hard, you could retire in financial security. You lived in a country that led the world in science research, education, and social mobility. We designed things, built things. We were creating the future. Many of us later traveled into Third World countries for work or pleasure. We were saddened by the crumbling roads, unsafe bridges, and unregulated companies poisoning the air and water. The income inequities seemed so unjust, and the people's inability to heal their country through a free political process was tragic.

Little did we suspect we might be looking into our own future.

But Arianna's not just crying in her beer. The final section of the book details a series of fixes, which include: Campaign financing. Citizen activism, with less reliance on politicians as saviors and more on ourselves as the agents of change. Spending on infrastructure and education. Bank reform with teeth. Homeowner relief. Service to others. Moving your money away from predatory financial institutions.

I'd add another to that fine list: Stop judging the tea party radicals around you. Sure, some may be extremists and racists, but lots of them are just frightened and angry. They're trying to reconcile what they "see" with what they're being told. Right now they believe a false story, but it hangs together and makes them feel sane in a seemingly insane world. Demogogues have always used these kinds of stories to exploit human fear. You can't blame people for believing a false story if they haven't heard the real one.

So don't blame the individuals, blame the story. Tell them a better one. The truth is a helluva story. But even the truth works better if it has a good hook.

(originally written for The Huffington Post)

The Robespierre of the Hedge-Fund Revolution

A hedge-fund manager's "investor letter" -- really more of a staged, theatrical tantrum -- has been getting a lot of attention lately. Daniel S. Loeb's diatribe demonstrates that banker greed is still out of control, and that it's as shortsighted and destructive as ever. The fact that Loeb is a registered Democrat and former Obama supporter doesn't matter as much as some people think. It's the same old story: Politics is just a means to an end, and the end in this case is self-enrichment.

If Loeb's pose as Hedge-Fund Revolutionary seems like a ridiculous form of populism, remember: The Tea Party began with an angry outburst on the Chicago Board of Trade, from traders who were outraged that homeowners might be given a fraction of the aid bankers received. Loeb's letter is mostly a marketing ploy, but if he can become the Robespierre of the Hedge-Fund Revolution I'm sure that would be fine with him, too.

After all, that would be good for business.

Observers who find seeming shifts of loyalty like Loeb's difficult to understand -- or who, likeAndrew Ross Sorkin, mistakenly consider them a matter of hurt feelings -- underestimate the economic incentives behind this behavior. Loeb's turgid and overblown prose (can't he afford a ghostwriter?) serves two very clear business objectives: to impress current and prospective clients and to push for a political climate that will better serve his personal interests. If that means talking like a Tea Partier, then bring on the three-cornered hat.

Sure, there's a hold-my-breath-until-I-turn-blue quality to Loeb's letter, as there has been with other such "poor-little-rich-kid" tirades. Obama famously told bankers that public rage against them was so great that "I'm the only thing standing between you and the pitchforks." And he did protect them -- possibly at the expense of his presidency. His administration rescued the banking industry, asking (and receiving) almost nothing in return. How do they repay him now? Rescued from pitchforks, they now whine at every possible pinprick.

And speaking of pricks (pinpricks, I mean)... the real problem isn't childish petulance, although that's a common personality trait with these guys. Loeb and his compatriots are rational actors, doing what they believe is in their own self-interest. They're writing big checks to Republicans and touting the discredited "no regulations" ideology that shattered the economy two years ago. That may benefit them in the short run, but it's bad for a lot of other people. It will lead to more economic crises and more environmental disasters. That will hurt small investors, along with the small business owners who'll find themselves even less able to obtain credit than they are now.

Not that people like Loeb care. Reports indicate Loeb's been earning $100 million a year, which means he's amassed the longed-for level of savings that Wall Streeters like to call "fuck you money." If his deregulatory fervor leads to more economic devastation, as is highly likely, that will be someone else's problem.

Loeb's diatribe came in the form of a letter to his investor clients, a group that he clearly holds in contempt. It was called a "Second Quarter Investor Letter," but a better title might have been "Hey Suckers!" He's looking to impress them, but he's not being honest with them. He's not telling them what the consequences of his no-regulation agenda will be. He seems to be operating on Robespierre's advice: "The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant." Loeb's certainly not educating his clients.

Sorkin got it right when he said that Loeb sounds "as if he were preparing to join Glenn Beck in Washington over the weekend." Loeb quotes Thomas Jefferson (out of context) saying things like "the minority possess their equal rights, which equal law must protect, and to violate (them) would be oppression." Right. We all know how oppressed hedge-fund managers are. In a move that's guaranteed to infuriate all but the most pampered of Americans, he also quotes Jefferson saying, "A wise and frugal government... shall not take from the mouth of labor the bread it has earned." (I guess hedge fundies are "labor" now, and Loeb's their Samuel Gompers.)

Loeb also "quotes" Ronald Reagan, but neither he nor Sorkin seem to be aware that the words he repeats -- e.g., "It's very easy to disguise a medical program as a humanitarian project" -- were merely spoken by Reagan as a hired actor. They're from an LP record he made for "Operation Coffeecup," an AMA-funded attempt to stop Medicare. (It's an interesting story; I think it was the first "viral marketing" campaign.) So is Democrat and erstwhile Obama backer Loeb really saying "government hands off my Medicare"? No. It's more likely that he's merely feeding the anti-regulatory frenzy by piggybacking on anti-health reform sentiment, while at the same time depriving his investors of some reasonably robust health insurance holdings to illustrate his point.

"We have also sold other regulated industries and eliminated our position in Wellpoint," he writes, " ... which we saw as being overly exposed to unpredictable government regulation." Give Loeb points for chutzpah: He's standing up for a company that's repeatedly expelled enrollees because they got sick, and which keeps hitting its clients with massive premium increases. If he keeps talking like that the villagers won't stop at pitchforks. They'll burn down the whole castle.

But it's all part of the strategy. By contributing to Republicans, with their discredited and destructive economics of nihilism, and by fueling the anti-regulatory rhetoric, Loeb stands to make more money than he would if government is allowed to take its regulatory responsibilities seriously. That's why he's now saying Michele Bachmann-y things like "the country's core founding principles included nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination."

And, about that "taxation"... Yves Smith points to the most blindingly obvious of Loeb's motivations. The administration's considering making hedge-fund managers pay the same tax rate on their earnings as people who work for a living. Pay the same percentage in taxes as a cop or a nurse? That's bound to tick a guy off. But I also think that Loeb's complaints, like the similar views that Fareed Zakaria so credulously ascribed to CEOs, have other clear policy objectives.

Loeb describes the government's suit against Goldman Sachs as if the Soviets were seizing the kulaks' farms all over again. The suit, he says, "seems designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others." (Gee, and most of us think Goldman and some other bankers have been getting off pretty easy.) Loeb also describes the CARD Act, which restricts some bank rapacity toward credit card holders, as "a well-intentioned government program gone awry." Let's see: The prime rate's 3.25%, average credit card interest rates are 16.79%, and Loeb says that banning the most egregious card issuer tricks is a "redistribution of wealth" to benefit "delinquent borrowers." If America's credit card companies can't make a profit with those margins, they deserve to go out of business.

Loeb throws in some obligatory rebukes of business executives, too, concluding "it is easy to see why so many people have concluded that the entire system is rigged." It is rigged, of course -- by a campaign finance system that ensures access and influence for Loeb and his cronies. But where most see the manipulative, ginned-up complaints of a self-entitled phony, Loeb hopes others will see him and his cohort as a "persecuted minority."

The irony is that these business people are most annoyed with Obama when Obama's at his most businesslike. Every CEO I've ever worked with has had two primary drives: to act in his company's best interests, and to protect and maximize his own position (not always in that order.) Obama's enacting the level of regulation that he considers best for his "organization," the US government. If he didn't use at least a little anti-banker rhetoric he'd lose his influence, and maybe even his job. Any one of the CEOs and investors complaining about the president would do exactly the same thing in his position. They'd be crazy not to.

The popular notion that Loeb, Jamie Dimon, or any of the other business leaders who backed Obama were his "friends" is overblown. They may well have liked him personally, but they gave him big campaign contributions because they knew he was going to win and they wanted a seat at the table. Now they want to protect themselves by crippling his ability to enact further reforms. But the policies they're pushing are enormously destructive, and the Republicans they're supporting this time around are talking destructive gibberish instead of rational economic policy.

As a deregulation romance novel, Loeb's letter is a bodice-ripper. It's the latest salvo in an ongoing war against real financial reform and regulations that protect the American people. But it's not a "breakup note" between Obama and his banker BFFs, as Sorkin seems to suggest. These bankers are simply acting in their own financial self-interest. As the original Robespierre said, "The law of self-preservation, with every being whether physical or moral, is the first law of nature."

Loeb's behavior isn't surprising. On the contrary: It's only natural.

(from The Huffington Post) 

Recent Financial Pieces at Huffington Post

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Peter Orszag's Tax "Compromise": Rubin's Ghost Haunts the Middle Class Again

89 Comments | Posted September 7, 2010 | 05:01 PM (EST)

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Peter Orszag's maiden voyage as a New York Times columnist resonates with twenty years of failed economic policy. It's a grab bag of Robert Rubin's Greatest Hits, remixed by a younger DJ for new audiences. It's all there: The mythologizing of the markets. The ritualized search for "credibility."...

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460 Comments | Posted September 3, 2010 | 01:48 PM (EST)

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Coup d'Etat: Standard & Poor's Is Now Giving Orders to Congress ... and the American People

395 Comments | Posted August 30, 2010 | 03:05 PM (EST)

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47 Comments | Posted August 27, 2010 | 02:59 PM (EST)

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Four prominent leaders of women's organizations held a conference call today, accompanied by Rep. Raul Grijalva, to demand the resignation of retired Sen. Alan Simpson as co-chair of the Deficit Commission. Their comments, together with a number of private conversations with women's leaders, indicate that Simpson and his Commission could...

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74 Comments | Posted August 26, 2010 | 02:09 PM (EST)

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