Wall Street doesn’t play by the same rules →4 min read Published by Lee Reamsnyder Permalink
Matt Taibbi (yes, again) explains how financial firms are playing a different game than the rest of us. A choice section:
CREDIT AMNESTY. If you or I miss a $7 payment on a Gap card or, heaven forbid, a mortgage payment, you can forget about the great computer in the sky ever overlooking your mistake. But serial financial fuckups like Citigroup and Bank of America overextended themselves by the hundreds of billions and pumped trillions of dollars of deadly leverage into the system – and got rewarded with things like the Temporary Liquidity Guarantee Program, an FDIC plan that allowed irresponsible banks to borrow against the government’s credit rating.
This is equivalent to a trust fund teenager who trashes six consecutive off-campus apartments and gets rewarded by having Daddy co-sign his next lease. The banks needed programs like TLGP because without them, the market rightly would have started charging more to lend to these idiots. Apparently, though, we can’t trust the free market when it comes to Bank of America, Goldman, Sachs, Citigroup, etc.
In a larger sense, the [Too Big To Fail] banks all have the implicit guarantee of the federal government, so investors know it’s relatively safe to lend to them – which means it’s now cheaper for them to borrow money than it is for, say, a responsible regional bank that didn’t jack its debt-to-equity levels above 35-1 before the crash and didn’t dabble in toxic mortgages. In other words, the TBTF banks got better credit for being less responsible. Click on freecreditscore.com to see if you got the same deal.
Or what about how they borrow for free from the government?
[T]he banks borrow billions at zero and lend mortgages to us at four percent, or credit cards at twenty or twenty-five percent. This is essentially an official government license to be rich, handed out at the expense of prudent ordinary citizens, who now no longer receive much interest on their CDs or other saved income. It is virtually impossible to not make money in banking when you have unlimited access to free money, especially when the government keeps buying its own cash back from you at market rates.
Your average chimpanzee couldn’t fuck up that business plan, which makes it all the more incredible that most of the too-big-to-fail banks are nonetheless still functionally insolvent, and dependent upon bailouts and phony accounting to stay above water. Where do the protesters go to sign up for their interest-free billion-dollar loans?
(I had to wonder about that when Goldman announced a $400 million loss last week; they literally could stuff Treasury bills up Charging Bull’s ass for safekeeping and make billions of dollars if they wanted. Guess they’re not your average chimpanzee.)
Taibbi is currently something of an unheralded national treasure. Part of Wall Street’s game is to hide behind complex-looking financial instruments and laws. They want things to appear so complex that you have to trust them. “Look, we must know what we’re doing, right?” To the bitter end they’ll claim that they’re smarter than everyone else. But Taibbi wades through their bullshit and gives you the clear, simple reasons that you should be pissed off.
It’s easy to get lost in all the acronyms (MBSs, CDOs, TARPs, CDSs), but it’s not that hard to understand that Wall Street is playing a rigged game.
Need the Cliffs Notes on the what happened and why you should be upset? Check out these and get mad fast:
- This American Life episodes: “The Giant Pool of Money", “Bad Bank”, “The Watchmen”, and especially “Inside Job”.
- NPR’s Planet Money team did a good series on a mortgage-backed security that they purchased. This American Life collected the highlights in their “Toxie” episode.
- Joseph Stiglitz wrote a very good article about “the 1%” in May of this year (before it was a rallying cry)
- The Big Short by Michael Lewis
- Michael Lewis and David Eisenhorn on thinking short-term
- Frank Rich on the “president’s failure to demand a reckoning from the moneyed interests who brought the economy down”
- Griftopia by Matt Taibbi