Gordon Gekko is toast

So it’s good riddance to Gordon Gekko. Maybe it is. I confess I’m stumbling about in the dark on it but this is big, man. “ Wall Street in crisis: Last banks standing give up investment bank status. The move spells the end of Wall Street as it has existed until now..” is the mother of all headlines. Goldman’s and Morgan Stanley have rushed to take shelter under the Fed before the crunch destroys them is how I read it. Surrender to the cops and plea bargain before the posse catches up. Have Goldman’s moved first to forestall tighter regulation? The Reuter’s financial snap covers it best so far. So what happens now to hedge funds and derivatives, do they go out of business? If the new banks from now on rely on equity based finance and their existing deposits, all very prudent, is risk-taking a thing of the past and will the whole world economy slow down? Might we look back wistfully to the old days of Bluebeard the hedge fund pirate in a month or two? And note this: “(There is a possibility that China’s sovereign wealth fund China Investment Corp could increase its stake in Morgan Stanley, according to sources familiar with the situation.” Another sign of these revolutionary times. (if you’re a banker). Gordon Gekko quotes below the fold…
“The richest one percent of this country owns half our country’s wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It’s bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you’re not naive enough to think we’re living in a democracy, are you buddy? It’s the free market. And you’re a part of it. You’ve got that killer instinct. Stick around pal, I’ve still got a lot to teach you.

  • Jean Baudrillard

    One could almost say that capitalism appears to carry the seeds of its own destruction.

  • baslamak

    Could this be why Cameron has gone to ground. Where is the Tory alternative? What a bunch.

    http://www.organizedrage.com/2008/09/david-cameron-scotland-yard-set-up.html

  • BfB

    Ninja loans…..plain and simple.

    The ‘red lining’ mantra of the socialists morphed into this….

    The greed of the irresponsible youth….
    Guess which party they vote for (if they vote at all).

    Peel the onion find the truth.

  • Ulsters my homeland

    Where’s our globe trotting terrorist when you need him. Step forward Gerry, Marxism to save the day!!! “To infinity and beyond”

  • Jean Baudrillard

    It’s worth taking a look at the proposed rescue bill here.

    [Sec. 6]; Paulson is given permission to buy $700 billion of worthless crap (from those thieving companies who almost destroyed the financial system)

    [Sec 10] the US national debt is raised to a staggering $11.3 trillion (a great excuse to trim back everything from health care plans to Social Security)

    And then the killer [Sec8 ]: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency”

    Basically the world’s so-called foremost democracy is handing massive powers to Paulson to give out nearly a trillion dollars to save incompetent companies – with little or no democratic oversight.

    The US was never going to go socialist on this one – but who would have thought that it would morph into some sort of po-mo version of fascist Italy?

    All it needs now is to elect some sort of war hero leader with anger management issues…..

  • BfB

    Jean

    You had me until the last sentence.
    This rescue bill (who wrote this bill?) will be infected with all kinds of earmarks that these dem socialist feel entitled to have…after all billions of Americans agree with them. If you ask for it to be in the public forum, cries of racism and class discrimination will ring out, along with someone lying and someone dying… The dem socialist are using their useful idiot base to turn the US into a subsidized housing project.
    But to stop this, all we need now is to elect some sort of war hero leader with anger management issues…..

    And start kicking ass..

  • susan

    I cannot believe Section 8 of your link, Jean Baudrillard:

    “Sec. 8. Review.

    Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

    A $700 billion blank cheque, in other words. And I suspect a few Gordon Gekkos are already lining up to make money over this $700 billion windfall while I’m still gasping like a fish on dry land in wonder at it all.

  • Steve

    bfb

    Is it not your beloved conservatives that are proposing the socialist agenda of nationalizing corporations?

  • susan

    I thought Treasury honcho Henry Paulson wrote it, Bfb? If not, please enlighten us. THe boats are headed for the falls — no, not that Falls — and it is no time to be cryptic.

    Here’s Paulson’s “career highlights” from WIkipedia:

    Career highlights

    Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972.[6] He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973.

    He joined Goldman Sachs in 1974, working in the firm’s Chicago office. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998;[7] eventually succeeding Jon Corzine (now Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US$37 million in 2005, and US$16.4 million projected for 2006.[8] His net worth has been estimated at over US$700 million.[8] Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: “Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country over 70 times.”[9]

  • baslamak

    Jean

    What these people are doing is very frightening, take this para of your post,

    [Sec8 ]: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency”

    If a progressive government was doing anything like this it would be pilloried from top to bottom, where are all those on slugger who for the last five years have been telling me you cannot buck the market, the market knows best, it must reach its own level,etc.

    This is a free get out of jail card for every thief who has brought us to where we are.

    Speak up you fellows and now tell me that the USA could not have afforded an NHS. It seems when it comes to bailing out crooked or inept bankers there is endless cash. By all means reimburse savers up to a reasonable limit and allow people to stay in their homes, but to bail out bankers who have behaved in the most reckless manner is simple adding insult to injury.

    What is the taxpayers getting in return for doing this? will the government receive shares in these failed businesses, or will it simply bung them the cash so in thirty years they can repeat this, safe in the knowledge the government will again bail them out.

    It is a speculators charter for if a business knows it will be bailed out by the tax payer, why would it be cautious, as they have little to lose, or so my capitalist pals have been telling me here for years.

    Beside the guys on slugger who have sung the praises of the neo liberals down the years, I have turned out to be a very moderate socialist. Win or lose they support the state bailing them out and ripping up the rule of law in the process. Uncle joe would have been proud of them..

  • Dewi

    I often thought that capitalism contained within it the seed of its own destruction.

  • Greenflag

    The Republicans have turned the US into a subsidised ‘home ‘ for the investment gangsters of Wall St and their ‘collaborators ‘ from among those Republicans who are still ‘unjailed ‘ !

    ‘And start kicking ass..

    Indeed .

    Bend over Bfb- your arse is first in line:) . And step up George ‘Herbert Hoover’ Bush and his band of neo con ‘brothers’ who have delivered for the USA and the world a perfect storm of mismanagement , corruption and criminal negligence over the past 8 years !

    Time for a new New Deal for America !

  • BfB

    Treasury ‘honchos’ don’t write bills Susan…
    Ivy league education showing?
    U.S. Senate Banking Committee, and the U.S. House Financial Services Committee.. these are the feckers that’ll muck this one up. Guess the majority party affiliation…
    Here’s the teller..
    ‘Congressional Democrats, however, said they would insist on adding measures to directly address the plight of U.S. homeowners stuck with expensive mortgages, and would challenge the unfettered authority given to Paulson.’

    The homeowners who were ‘stuck’ with ‘expensive mortgages’…whining socialist, democratic bitches. These ‘Congressional Democrats’ have engineered this since the ‘redlining’ crap and it goes hand in hand with the destroyed, nanny state, socialized, useless public education (read indoctrination) system.
    Ninja loans…….who got ’em and who gave ’em?
    Both groups never expected the ‘pay it back’ concept of how real Americans live their lives. You socialist eurofeckers wouldn’t get it anyway..your ass’s have been bailed out in one way or another since recorded history..
    Go hide behind brussells skirt..wankers.

  • Greenflag

    BW

    ‘I confess I’m stumbling about in the dark on it but this is big, man. ‘

    You are no more in the dark than George ‘Herbert Hoover’ Bush or most of the politicians in Washington , London or Dublin or economists around the world who are now running through their records to see if they predicted the present mess a few years ago .

    Susan

    ‘ And I suspect a few Gordon Gekkos are already lining up to make money over this $700 billion windfall’

    Which is why they have to rush this through Congress . A few politicians are trying to slow the rush down and bring in some oversight so that Paulson does not become ruler of the ‘universe’ :

    ‘I thought Treasury honcho Henry Paulson wrote it’

    He did ‘three pages’ just about enough detail to convince the politicians that they had an emergency on their hands . Would’nt want to tax the ‘brains ‘ of the political elite on Capitol Hill especially titular President George ‘Herbert Hoover’ Bush .

    I suspect this ‘bail out ‘ will not go through without significant ‘amendments ‘ President Paulson’s three pages . At least I hope so !

  • But could the financial squeeze have one silver lining: less taxpayer money and less appetite for ill-judged wars?

    So thinks former Chancellor Norman Lamont (and he should know a thing or two about economic crashes…) Further thoughts at Belfast and Beyond.

  • Greenflag

    dewi ,

    ‘I often thought that capitalism contained within it the seed of its own destruction.’

    It does Dewi but since the fall of communism the neo cons of the extreme right have succeeded up to now in bludgeoning the rest of the world into believing it was ‘creative ‘ destruction. These idiots believe that if you destroy the ‘social contract’ that keeps ‘democracy ‘ alive it will be good for ‘everybody’. They have learnt nothing from the economic , social and historical circumstances that gave rise to the French and Russian revolutions nor to the rise of Fascism and Nazism . As the American middle and lower income groups continue to be emisserated you can expect ‘class’ war. America has never been so divided politically well not since the 1920’s and 1930’s.

  • Jean Baudrillard

    But could the financial squeeze have one silver lining: less taxpayer money and less appetite for ill-judged wars?

    Well, the precedents aren’t particularly good are they? What happened after the 1929 crash? Oh yes, the collapse of the Weimar Republic, the rise of the Nazis and the onset of World War II.

    An increasingly wounded USA, with an economy holed below the waterline, competing for resources against China, Brazil, Russia and India? Could be a dangerous beastie – particularly with someone like McCain in charge.

  • Greenflag

    P-corrigan –\\from your link

    ‘The war in Iraq has so far cost US taxpayers a figure that will soon be $752bn. By the end of next year the figure will be over $1 trillion. Indeed, Nobel Prize-winning economist Joseph Stiglitz reckons the final cost of the Iraq war alone could be at least $3 trillion, a phenomenal sum.

    However, whether or not the weakened economies of the US and UK will lead to less bellicose foreign policy in the years to come remains to be seen.’

    With Palin gunning for Russia and McCain gunning for Iran’s oil reserves via the ‘nuclear issue’ the you can be sure that if the Republicans end up in the White House the USA will continue on it’s path of self destruction 🙁

  • Greenflag

    jean boudrillard,

    ‘Could be a dangerous beastie’

    Indeed . It’s taken the Japanese 20 years to recover from their financial system debacle two decades ago . The Americans are notorioulsy less patient than the Japanese . I can’see the USA going through 20 years of stagnation without precipating a major political revolution which would be made worse by unresolved immigration , health care and social security issues !

    If the USSR can break up due to political and economic collapse why not the USA ?

  • Steve

    Greenflag

    Ohh gees I will start setting up the refugee camps

  • Dewi

    At the sory of Government support being implemented in US you have to question the Goverment’s abilty to raise such debt. Who is going to buy the bonds with such lliquidity issues already?

  • Dewi

    “sory”??? – “Scale” – sorry.

  • Greenflag

    Dewi ,

    ‘you have to question the Goverment’s abilty to raise such debt. ‘

    About a year ago IIRC the Bush administration vetoed a Health Care bill which would have extended ‘free’ health care to millions of uninsured American childen -i.e the children of the lower income groups and poorer immigrants . Reason being the ‘excessive’ cost estimated at 7 billion dollars IIRC .

    However finding 700 billion to bail out the investment bank ‘fraudsters ‘ and his Wall St buddies is another ‘story ‘ 🙁

  • Dewi

    Fascinating who owns US debt See the amount held by China.

  • susan

    Bfb,it doesn’t take an Ivy League education to read the writing on this wall.

    Keep on smiling, Bobby. Everything is going great!

  • “But could the financial squeeze have one silver lining: less taxpayer money and less appetite for ill-judged wars?”

    Unfortunately this is not the case, capital has historically used economic downturns to engage in foreign wars, indeed some economists still claim the recession caused by the 1929 crash did not end until the US entered WW2 and the post war boom was based on that war.

  • Greenflag

    Dewi ,

    ‘See the amount held by China.’

    Those figures (April 2008) . In the last couple of months the Chinese have exceeded the Japanese as Amercas’s biggest creditor . Now you finally understand why George ‘Herbert Hoover’ Bush was forced to sit for two to four hours in the sweltering heat of the Olympic Stadium in Beijing . Can’t afford to have the Chinese ‘upset ‘ and have them ‘reduce ‘ their holdings . The American taxpayer is now about to become the ‘slave’ of foreign creditors as Bush tries to push another 700 billion on top of the present trillions 🙁

    Main street America may well be on the boil for a financial revolution which could send the entire world economy back to the 1920’s and the dollar to a rating equivalent to the former (communist era ) Polish zloty.

    BTW how does an officially communist country like China get to own so much USA debt :)?

  • Greenflag

    ‘BTW how does an officially communist country like China get to own so much USA debt :)? ‘

    Now I remember 🙂 This is just another of George ‘Herbert Hoover’s ‘ economic /foreign policy successes 🙁

    Ye just can’t beat this Republican neo con adminstration for world class ‘imbecility’ , impeccable timing in delivery and crass self serving stupidity 🙁

  • Comrade Stalin

    I’m trying to make sense out of BfB’s incoherent posts which frankly sound like they’re coming from someone who is drunk. But the basic idea is :

    – the problems have been caused by Democrats. Well, no. The Republicans have been in charge for 8 years. The Republican President can still veto any legislation the Democrats decide to put through. He won’t of course, because he isn’t stupid.

    – the solution being proposed is coming from the Democrats. Well, no. It appears, right now, to have support across the House as well as in the White House, and at the Fed.

    – the solution is damn socialism. Hmm. Bailing out very rich corporations and their shareholders, while allowing the smaller ones to die. Let me see now. I don’t remember Karl Marx specifically recommending this course of action to the revolutionary proletariat.

    The idea of buying mortgage books off the banks is a sound one. The Bank of Japan did this a few years ago, and it resulted in significant profits for the Japanese government, as well as achieving the desired effect of stabilizing the financial system. It is not often that I praise the Bush administration, but it has to be said that there are some clever people working there who have the right ideas about how to fix this problem.

    It would be quite wrong for corporations based in Europe to benefit from US taxpayer funds. I think the governments of Europe need to introduce similar measures to those seen in the US.

  • BfB

    What happened? Despite moves from Republicans such as Chuck Hagel, John Sununu, Elizabeth Dole, and John McCain to get more regulatory oversight on Fannie and Freddie, Congress took no action. Why? Fannie and Freddie had already co-opted Chris Dodd with over $130,000 in campaign contributions over 20 years, and over $120,000 to Barack Obama over less than four years. Hillary Clinton took tens of thousands in eight years, and Chuck Schumer also opposed any new regulation on markets that Congress had forced open.

    The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”

    What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

    Different World

    If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

    But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.

    That such a reckless political stand could have been taken by the Democrats was obscene even then..

  • earnan
  • Steve

    bfb

    I don’t know where you copied and pasted that post from but it is obviously not yours as its not full of non-sensical rants and spelling mistakes

    You should really attribute when you steal others work

  • BfB

    steve

    you’re an idiot…

    any third grader can look at the link and see it as my cite.. go on the kos site and drool with the rest of the wankers..

  • aquifer

    There are systemic problems with banks that need systemic solutions. Banks were regulated assuming a ratio of something like one banker’s dollar to eight dollars lent out, but the banks found clever ways to increase the risks they took so that they were underwriting loans worth twenty five times their capital. ‘Profits’, as defined by their auditors and bonus committees, soared alongide an increased future exposure to downside risks for the institutions. The bankers paid an annual bonus in cash got their upside early, playing double or quits with other people’s money.

    The high risk investments were credit rated by companies paid by the sellers of the investments, so there was a clear conflict of interest for the rating agencies. -‘give me a triple ‘A’ rating or no fat fee for you.’ Well spotted Alastair Darling, if a little late.

    Another conflict of interest is the auditing of banks. Who would pay an auditor who said your bonds are junk so forget about your annual bonus? Companies are audited on a ‘Going Concern’ basis, a problem when values drop and assets are both illiquid and ill-defined. Who was it that audited Enron?

    For companies that own or make things valuations are more straightforward, as they will usually relate to sales of things within a shortish timescale, which can have a value assigned to them with some degree of certainty. Also the failure of one company due to a change in consumer preferences for example, does not threaten widespread sectoral or economic collapse, as consumers are then spending on something else, and assets and personnel can often be usefully re-deployed.

    How to unwind all this? Regulators need to get on the ball for sure. Banks may be a special case where the auditing is too important to be controlled by the banks alone.

    And how much will government have to pay for dud assets? One commentator at http:www.opendemocracy.net suggests a reverse Dutch Auction. Another suggests that if governments always have to be prepared to underwrite banks, that they should auction off ‘licenses to be banks’ to the highest bidders.

    Should banks be forced to sell financial instruments regularly so that a market value is continually reaffirmed? The banks in Japan held on to non-performing loans for a long time rather than ‘fess up to their basic incompetence in lending the money in the first place.

    Can the real economy wait that long?

  • Steve

    ah see thats the illiterate bfb we have come to know and laugh at

  • The idea of buying mortgage books off the banks is a sound one. The Bank of Japan did this a few years ago, and it resulted in significant profits for the Japanese government, as well as achieving the desired effect of stabilizing the financial system.

    Comrade Stalin

    You are right about the above and it highlights that the responsibility for this crash lays firmly with Bush [US] and Brown, {UK] as the example of the crash in Japan was there for them to see and take measure in time to either avoid this crises altogether, or lessen its depth. They decided to let the market decide and sat back whilst house price inflation roared in the US and UK/Ireland.

    In the long run the only way we will get out of the depression that is heading in over the Atlantic is to cut the welfare state to the bone or raise taxes.{The sensible options of cutting military spending etc will not even be considered by these boneheads} I would bet what will be left of my pension when this bottoms out, they will choose the former and by doing so they will be making those on an average income and below pay for what was avoidable.

  • William F Sharpe

    Stanley O’ Neal took $172 million over four years from Merrill Lynch. The year before he was ousted he was told some of the investments were bad what did he do?
    Yes, he sacked the employee rather than leaving a market that was bad for his company, taking a loss, and losing some of that $172 million.
    This year something hit the fan and he was sacked. Merrill Lynch was sold for $50 bn after writing off $40 bn. The shares were $29 in that deal after being $90 a year earlier.

    Over the years Hedge Funds have produced greater returns than Investment banks and had a lower variance in that they were less risky. So they were better at doing their jobs than Investment banks.