Siding with Wall Street’s “Winners”

A piece by William D. Cohan in the current issue of Vanity FairWall Street Executives from the Financial Crisis of 2008: Where Are They Now?, is pretty harsh on the bankers who lost their top positions in the 2008 meltdown (Jimmy Cayne of Bear Stearns, Stan O’Neil and John Thain of Merrill Lynch, Ken Lewis of BoA, Angelo Mozilo of Countrywide, Dick Fuld of Lehman), chronicling their downfalls, their enormous severance packages, much smaller amounts in fines and penalties they had to pay, the ginormous mansions or penthouses they now live in, and their refusal to speak with Cohan about the financial crisis. In contrast, the “survivors” of the meltdown (Gary Cohn and Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan) did speak with Cohan, and Cohan is a bit easier on them. Cohan quotes Dimon in ways that make him sound wise and high-minded, e.g., when he says that there was a better approach than TARP and the bailout of the banks, which tarnished the whole banking industry:

In retrospect, Dimon says, a better way to rescue the system may have been to dismantle the banks that screwed things up. “If management ruined their companies, their boards should have been fired, management should have been fired,” he continues. “I support the clawbacks. I think that’s perfectly fine. The American public would have received some sense of justice being done.” He thinks there should have been some differentiation between well-run banks and poorly run banks: “If you said to me, how do I feel about some of these C.E.O.’s who walked away with $50, $100, $150 million and their company blew up? Terrible. It’s outrageous. I agree with them. Everyone says that’s bad. If this company went bankrupt, we should all give back the money we earned in the last five years or more. You wouldn’t have to ask me.”

And the article ends with an account of how “Dimon’s world was turned upside down last June” when he was diagnosed with throat cancer and underwent treatment, including radiation:

He also had six full days of chemotherapy. He lost 35 pounds. His body was burning some 4,000 calories a day because of the treatment. “It was hard to eat,” he says. “Your throat hurts. You have no appetite. Everything tastes just absolutely terrible. So you literally just search for the foods that you can get down.” Into this group fell oatmeal, scrambled eggs, and milk shakes.

By December, he was declared cancer-free. Whew!  But the experience made him confront his own death:

He is not yet sure how the bout with cancer has changed him. He believes the way he can still make the most difference for the world is at JPMorgan. “I really mean that,” he says. He talks about jobs that can be created through providing capital to companies. He talks about how the firm has hired 8,000 military veterans and is investing in Detroit.

So what started as a piece about how various Masters of the Universe have weathered the financial crisis (and what looked like it would be about how many of them made a killing and ended up quite comfortable, despite fraud, recklessness, malfeasance) ended up as a sympathetic piece about the “survivors” (i.e., the winners) of the crisis.  (The URL for the of the online version of the piece even reflects this shift, mentioning Dimon’s cancer when the title of the article doesn’t: It’s a little surprising, since Cohan has been harsher on Dimon and the bankers (e.g., in this NYT Opinionater piece from May 2011, which anticipates the Occupy movement, in which he speaks favorably of Nicholas Sarkosy’s excoriation of Dimon at Davos that year).

You wouldn’t know, from Cohan’s piece, that JPMorgan has been fined more than $35 billion in the three-and-a-half-year period ending at the end of 2014, according to (JP Morgan’s Fines to Date: A Brief History), or that “[n]early all of the penalties were tied to the financial crisis and the company’s promotion and use of mortgage-backed securities.” Maybe Cohan assumes that his readers know or remember this, but wouldn’t it have been a good rejoinder to Dimon’s high-minded claim that the poorly-run banks should have been dismantled and their executives punished? (As the LA TImes‘ Michael Hiltzik points out (The Myth of the Obama ‘Attack’ on JPMorgan’s Jamie Dimon), it is pretty rich that Dimon whines about being persecuted by the Obama administration when the fines have come from many directions besides the federal government, including “several state attorneys general, the European Commission, the British Financial Services Authority and the government of Switzerland” (for LIBOR manipulation), the British Financial Services Authority and other regulators (for the “London Whale” losses), the Madoff securities estate (for complicity in Madoff’s Ponzi scheme), and from the California Independent Independent System Operator, the government of the city of Milan, and the attorneys general of New York and Florida. And this is putting aside any disagreement we might have with what appears to be the Obama administration’s policy of pursuing fines against the banks instead of criminal prosecution of the bankers.

And you wouldn’t know, from Cohan’s piece, that Dimon told the Federal Crisis Inquiry Committee in 2011 that “In mortgage underwriting, somehow we just missed, you know, that home prices don’t go up forever and that it’s not sufficient to have stated income.” As Bill Black puts it in a great recent blog post, we’re supposed to think that “JPM just forgot that lenders need to underwrite their loans and that financial bubbles cannot continue indefinitely.  JPM is the world’s largest bank.  Tens of thousands of people would have to simultaneously forget the same points that had been drilled into them over the course of their education and professional employment.  Tens of thousands of JPM employees would also have to forget that their loan manuals existed.  Dimon’s claim is the stuff of bad science fiction.” As Black points out, on 2012, in JPM’s annual letter to shareholders (where he seems to say different things than what he says to financial journalists and government commissions), Dimon indicates that he understands underwriting a little better than that:  “Low-quality revenue is easy to produce, particularly in financial services.  Poorly underwritten loans represent income today and losses tomorrow.” Black again: “Dimon’s statement is pithy and captures the essence of the fraud recipe and its sure things.”

An extreme case of celebrating and sympathizing with the victors is the recent scandal of SEC offical Andrew “Drew” Bowden, who was caught on camera issuing fawning praise for the private equity industry and even joking that he’s encouraging his teenage son to go into the industry (see video above, or here). The story was broken by Yves Smith at Naked Capitalism (The SEC’s Andrew Bowden: A Regulator for Sale?), and covered by Matt Taibbi at Rolling Stone (Regulatory Capture, Captured on Video) and by the LA TImes‘ Hiltzig (Bankers Are Complaining Again–About Too Much Regulation).

The remarks he made at Stanford are bad enough on their own; joking about his son entering the field was bad, but it’s the attitude toward Wall Street’s wrongdoing vs. its “success” that is really appalling. Bowen said:

Like what, who else out there is in a business that’s that good? And I reckon, it’s sort of interesting for me for private equity in terms of all we’ve seen, and what we have seen, where we have seen some misconduct and things like that, ’cause I always think like, to my simple mind, that the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know…

Taibbi remarks: “it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.”

And what is especially damaging for Bowen is that he was highly critical of the private equity industry just last May (see Spreading Sunshine in Private Equity), especially about the industry’s fees (something Yves Smith at Naked Capitalism has been hammering home on), and told Gretchen Morgenson of the New York Times that “[i]n some instances, investors’ pockets are being picked.” But since then Bowen has backpedaled (e.g., in the interview he did for this piece for Private Equity International), so that the Stanford remarks look like a complete turnaround–which is why the charge of regulatory capture fits so well.

 –Chris Sturr

Links on SYRIZA-Eurogroup Agreement

Boston--"Caution--Falling Ice!" signsLinks on Greece:  Now that the Syriza government has reached an agreement with the powers that be in Europe to extend its bailout for four months, there seems to be a lot of disagreement about how to assess it, even among commentators and sources that I trust. Most people seem to think the outcome is bad for Syriza and Greece, but some people think the jury is still out and the agreement may give Syriza some breathing room to make more headway later; others think it’s bad but Syriza was forced or even blackmailed into it; others blame Syriza’s strategy and call for it to admit failure and try a new strategy; others speak of betrayal or capitulation by Syriza. (At least none of my left trusted commentators are praising the Troika (now renamed “the Institutions”), which would really leave my head spinning!) Here is a list of links, with minimal annotation from me–I will let readers sort it out.

John Cassidy, The New Yorker, Greece Got Outmanoeuvered. His position is that Greece was outmaneuvered, did a “U-turn” in exchange for little. “In retrospect, it is clear that Tsipras and Varoufakis overplayed their hand.” But “the game isn’t over yet” because it’s just an interim agreement.

Costas Efimeros, The Press Project, “Europe trashed democracy”. The title is taken from a question that Paul Mason of Britain’s Channel 4, asked of Jeroen Dijsselbloem, president of the Eurogroup: “”What do you say to the Greek people, whose democracy you’ve just trashed?” This is a bit old–from Sunday–but it cites an anonymous Greek official as saying that “the Greek delegation were yesterday subject to outright blackmail” (the quote is of Efimeros, not the anonymous official).

Yves Smith, Naked Capitalism, ECB and IMF to Greece: No Escaping the Austerity Hair Shirt. The latest of her posts since 2/20 arguing that Syriza caved and Greece is screwed.  What really puzzles me is the commenters to this post who are comparing Syriza’s leadership with Obama’s betrayals (prompted by Yves remark that Syriza’s slogan “Hope Is Coming” is a “subconscious echo” of Obama’s “Hope and Change”). This strikes me as ultra-leftism.

Manolis Glezos, MR Zine, Before It Is Too Late.  A short statement by a Syriza member of the European Parliament; apology to the Greek people and call for Syriza supports to fight back against the Troika and Memoranda.

Stahis Kouvelakis, Jacobin, The Alternative in Greece. The “alternative” in the title is explained (sort of) in a section subtitled “How to Avert Total Defeat”:  it is to be “honest” and admit that the party’s strategy failed (“to present a defeat as a success is perhaps worse than the defeat itself.”). Cites the Glezos apology approvingly; very critical of the Syriza strategy. More from him at the website of his publisher, Verso.  One of the pieces at his author page at Verso says that the Syriza leadership was “trapped by its mistaken strategy: though I wouldn’t say it was a ‘betrayal’ or ‘capitulation’, since these are moralising terms that are of very little use for understanding political processes.” But calling for them to be “honest” isn’t moralizing, mind you.

Richard Seymour, Lenin’s Tomb, Syriza’s mauling at the EU negotiations. Another dismal view of the agreement; Seymour calls Tsipras’s account of the agreement “deluded.” A sample: “Tsipras said that the deal creates the framework for Syriza to address the humanitarian crisis.  Not with the commitment to a primary surplus and troika oversight, it doesn’t.”

William Blum, Counterpunch, The Greek Tragedy. Very interesting short piece (hat-tip Mike-Frank Epitropoulos) reviewing the history of post-WWII crushing of the Greek left (with British and American and CIA complicity and help), concluding that the Syriza negotiators may not have known what they were up against, and that: “Greece may have no choice, eventually, but to default on its debts and leave the Eurozone. The hunger and unemployment of the Greek people may leave them no alternative.”

Now for the more positive assessments:

Étienne Balibar and Sandro Mezzadra, Verso website, Syriza Wins Time—and Space. Rejoinder to the doubters. They speak of the formidable barriers that popular movements against austerity and this one left government face; “It would be naïve to imagine that the Greek government could break down these barriers all by itself.”

Mark Weisbrot, Center for Economic and Policy Research, Greek Bailout Extension Deal Represents a “Significant Retreat” by the European Authorities, CEPR Co-Director Says. This is a press release from 2/20 quoting Weisbrot, who took a much more positive view of the deal (or at least did on Friday–he may have changed his view since Monday or Tuesday).

James K. Galbraith, Social Europe, Reading the Greek Deal Correctly. Galbraith is friends with Varoufakis, who at some point taught at UT Austin where Galbraith teaches, and has been acting as an advisor to the new Greek government during the negotiations, which gives him some credibility (though maybe critics would say he’s over-invested in the same bad strategy). His reading of the deal hinges on the wording of the deal. For example:

[T]here was the lovely word “arrangement” – which the Greek team spotted in a draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday afternoon and proceeded to deploy with abandon. The Friday document is a masterpiece in this respect:

“The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.”

If you think you can find an unwavering commitment to the exact terms and conditions of the “current programme” in that language, good luck to you. It isn’t there. So, no, the troika can’t come to Athens and complain about the rehiring of cleaning ladies.

Again, this was from right after the agreement was signed on Friday, but before the reform measures were submitted on Monday (Varoufakis got them in on Sunday, actually). So I wonder what he would say now.

Two interviews from the Real News Network that I haven’t watched yet, but look like they are more positive toward the agreement (and by economists whose views I trust):

Michael Hudson, Real News Network, European Banks vs. Greek Labour
Heiner Flassbeck, Real News Network, Greece Eurozone Deal a Setback or Tactical Win for Syriza?

Finally, I finally got around to reading the piece from a while ago by Varoufakis, reprinted more recently in the Guardian, How I Became an Erratic Marxist (hat-tip to TM and JFS). Not an easy read, in more ways than one: it’s pretty theoretical, and it’s depressing. He is explaining why he thinks it’s more important to save European capitalism vs. letting it crumble in the hopes that socialism will emerge from the rubble. He thinks (roughly) that the left is so weak that the right would seize power if European capitalism fails. So that goes a long way toward explaining why he seems to reject the so-called “Grexit” out of hand and doesn’t want Greece to act unilaterally.

(Note: This post’s “possibly irrelevant image” is of the falling ice signs that have proliferated all over downtown Boston (they are there every winter, but there are so many more this year). I understand what I’m supposed to do when I see a “Caution–Wet Floor” sign, but what am I supposed to do when I see a “Caution–Falling Ice” sign? Reader suggestions are welcome.  And if anyone can figure out a way that the image is relevant to the post, I’d love to hear that, too.)