Tuesday, April 20, 2010

The Lower Depths, Or The Limits of My Financial Understanding

(I actually watched almost all of Leviathan on HBO a couple weeks ago on a Saturday afternoon. Spoiler alert: it ends with Peter Weller punching a woman right in the face. Triumphantly.)

So, I'm more or less willing to admit defeat when it comes to writing about the banking and securities reform we either will or will not get. When I read good horse-race pieces on the subject, I feel only half-educated by dint of all that horse-racery. Boldface the names and it's basically a long gossip column about ugly people, without the Page Six-y product placement: "The bill Senator Chris Dodd moved through his Banking Committee in March was significantly tougher than the bill the House passed in December. Then, last week, Senator Blanche Lincoln shocked Wall Street by producing an even tougher bill than that. “This thing is not a battle they’d anticipated,” says one administration official. The industry had widely expected Lincoln to soften Dodd’s derivatives measure as part of a compromise with her Republican counterpart, Saxby Chambliss. Senator Jim DeMint was spotted canoodling with Peaches Geldof at Avenue and drinking Ciroc vodka."

There's information there, but it's the sort of thing you get in the "Around The League" bit at the end of a baseball column; who's up, who's down, how Senator Maria Cantwell's arm is feeling after a rough outing against the Twins last week, etc. And I'm on the record with a bunch of indistinct outrage at the fatuity of the macro-scale press and politicians on this, too.

But the more I've read about all this in the last few days, the more I've developed... well, not a sympathy for the people either getting this wrong (the media, willing to discuss only minutia and political optics) or not even trying to get it right (Republicans in the Senate, unwilling to do any fucking thing). But something like a sympathy, if only because of how devilishly complicated this whole thing is. The amount of deceit and creativity and calculated disinformation that goes into a mega-scam like the Magnetar -- This American Life segment on it here, very concise summary from The Economist here -- is almost impossible to summarize in a couple of sentences, and an attempt to go deeper is so winding and bottomless a rabbit hole that it is admittedly a lot simpler to weigh how everything's polling and what political effect it all might have. The problem with that, of course, is that the polls and politics reflect the result of the media's hands-in-the-air abdication of its duty to even attempt to cover this stuff. It's complicated, but it can be summarized. I tried it myself, and I think this is more or less correct:

Because there are essentially no legal rules governing the trading of real and synthetic securities -- and because the SEC can't and doesn't enforce anything and -- all kinds of crazy financial shit got created and traded. Because there are essentially no legal regulations regarding hedge funds, regulators have no idea what they're doing and thus no way to stop them from constructing scams in which they game the market. Goldman did something like this, and they're now getting in some temporary trouble for it. But the bigger problems, in no particular order, is the absence of any responsibility on the part of the dealers, the lack of laws explicitly forbidding the worst behavior, and the compromised, cash-strapped, overwhelmed SEC's inability to enforce what laws do exist. And because no one but the ethically deficient scam-architects knows anything about any of this, slower and less-sophisticated institutional investors got rolled and the actual human-scale economy got a robust dick-kick

And I'm terrible at summarizing things. I write 500-word emails to people to see how their weekends went and 1100-word blog posts about Gary Matthews Jr. Surely a professional could do it better.

Still, I don't really want the job of writing about finance. This is because I still don't get much of anything about it, as that supposed-to-be-nifty summary actually bears out. Luckily, there are others who are 1) better at holding all these different narratives in their minds without having to lie down, 2) more interested in the topic in general, and 3) more comfortable with accepting the idea of the unknowable and opaque. Moe Tkacik writes about this stuff really, really well and does so in breaking down Goldman and Magnetar (and the opacity of each) here; I got to her post via another accessible and intelligent post on the subject by Choire Sicha today; Andrew Leonard at Salon is always good for a patient and coherent explanation. I, for my part... will stick to sports and Dino-Riders videos going forward, because those are my core competencies. But:

But, I am hoping that maybe, at last, we are going to get some sort of conversation on this. The collapse these guys created is now nearly two years in the past, and if it's slightly better understood in certain ways it's also still mostly un-discussed. I guess it's easier to dress up like the old New England Patriots logo and yell about how Obama is as socialist as The Joker or whatever. I know that it is. But even if it's more or less impossible to explain how things got this bad -- how these scams even work, were concocted, were essentially legal -- it's seeming possible to me that an ignorant-ish, over-emotional national conversation on this could possibly still lead to public pressure for real regulation and maybe (this is iffier) actual regulations, provided the bad guys in that ignorant conversation are the actual (and actually very bad) bad guys. Which is maybe kind of cynical/Straussian of me or something, but I'm trying to find a place where necessarily bleak realism and stubborn hope overlap.

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