Parts of this morning's column is a helpful read for any lay person trying to understand why their home equity has cratered. First and foremost, I blame the new American culture of corruption. And until it is stopped, and I don't know how yet, or turned around, we won't be seeing the economic turn-around that America needs. And so we turn perhaps to America's leading cultural critic:
Warren Buffett’s warning in 2003 that derivatives were “financial weapons of mass destruction” was politely ignored. Much larger companies than Enron figured out how to place even bigger and more impenetrable gambles on derivatives, all the while piling up unseen debt. They built castles of air on a far grander scale than Kenny Boy could have imagined, doing so with sheer stupidity and cavalier, greed-fueled carelessness rather than fraud."[C]arelessness rather than fraud." Interesting because so many would immediately point to fraud as a major driver of our economic morass. But Rich is pointing to "greed-fueled carelessness." That's striking because it's worse than fraud. It implies a systemic lack of basic human empathy, and that is sociopathic. Has our culture of corruption fallen that far? Scary.
The most stupendous example as measured in dollars is Citigroup, now the recipient of potentially the biggest taxpayer bailout to date. The price tag could be some $300 billion — 20 times the proposed first installment of the scuttled Detroit bailout. Citigroup’s toxic derivatives, often tied to subprime mortgages, metastasized without appearing on the balance sheet. Both the company’s former chief executive, Charles O. Prince III, and his senior adviser, Robert Rubin, the former Clinton Treasury secretary, have said they didn’t know the size of the worthless holdings until they’d spiraled into the tens of billions of dollars.Notice the denial of any responsibility whatsoever on the part of these top executives. (Earlier in the column Rich makes the same observation of Bush.) It seems now the standard MO for America's executives to deny all personal responsibility for failure. How American is that? If you say "very," then you're talking recent history and not the American ideal.
Once again, regulators slept. Once again, credit-rating agencies, typified this time by Moody’s, kept giving a thumbs-up to worthless paper until it was too late. There was just so much easy money to be made, and no one wanted to be left out. As Michael Lewis concludes in his brilliant account of “the end” of Wall Street in Portfolio magazine: “Something for nothing. It never loses its charm.”We have discussed the 2000 Commodities Futures Modernization Act, which legalized gambling on Wall Street, but we've said less about the equally destructive 1999 repeal of the depression-era "Glass-Steagal" act called the "Gramm-Leach-Bliley" act, which was enacted with Democratic support, championed by Gramm, and like the CFMA in 2000, was signed into law by a Democratic president.
But if all bubbles and panics are alike, this one, the worst since the Great Depression, also carried the DNA of our own time. Enron had been a Citigroup client. In a now-forgotten footnote to that scandal, Rubin was discovered to have made a phone call to a former colleague in the Treasury Department to float the idea of asking credit-rating agencies to delay downgrading Enron’s debt. This inappropriate lobbying never went anywhere, but Rubin neither apologized nor learned any lessons. “I can see why that call might be questioned,” he wrote in his 2003 memoir, “but I would make it again.” He would say the same this year about his performance at Citigroup during its collapse.
The Republican side of the same tarnished coin is Phil Gramm, the former senator from Texas. Like Rubin, he helped push through banking deregulation when in government in the 1990s, then cashed in on the relaxed rules by joining the banking industry once he left Washington. Gramm is at UBS, which also binged on credit-default swaps and is now receiving a $60 billion bailout from the Swiss government.
It’s a sad snapshot of our century’s establishment that Rubin has been an economic adviser to Barack Obama and Gramm to John McCain. And that both captains of finance remain unapologetic, unaccountable and still at their banks, which have each lost more than 70 percent of their shareholders’ value this year and have collectively announced more than 90,000 layoffs so far.We can't just say that now is not the time for accountability. There has never been a more important time. The excesses that led to the tech bubble repeated themselves in the real estate bubble, and the corruption began in the 1990's continued unabated to today, even accelerating under the protection and encouragement of a corrupt and ignorant congress.
The Times calls its chilling investigative series on the financial failures “The Reckoning,” but the reckoning is largely for the rest of us — taxpayers, shareholders, the countless laid-off employees — not the corporate and political leaders who led us into the quagmire. It’s a replay of the Iraq equation...
If you want to understand why your home equity is taking a hit, you can't fully understand without also understanding the crisis that is the modern American culture of corruption. And that culture has omni-partisan enablers at its roots.