Dean Starkman: One would think and I’d say there are three reasons and two are not the press’s fault and one most certainly is. The first reason as I alluded to was the fact of deregulation; the Bush administration was not only an ineffective regulator, they were actively hostile to bank regulation. In fact they affirmatively fought state regulators who were trying to regulate abuses in the mortgage system. So the press was dealing with a very difficult environment. Journalism and regulation actually do go hand in hand and there’s a synergy that happens between regulators, effective regulation and uncompromised journalism, that can really police rogue industries. So that went away and that was a big problem.
The second piece of the puzzle, as you know working in the media business, this was not a good time for newspapers and for media in general. The great collapse, the unravelling of media had begun with the rise of the internet. There were for instance four rounds of layoffs at The Wall Street Journal during this period. You could say, well that didn’t necessarily materially affect the number of boots on the ground. But I can tell you as having been there, that it did play a role in the confidence of the business press, in the aggression of the business press, in their risk aversion which I felt was really the decisive factor.
Hi Ryan:
A nice roundup of things, as usual.
One point against Spain, if I may. While it is true that Spain's national finances were perfectly fine, one reason for that is the property bubble -- Spain puts a pretty big tax on property transactions, so the real estate bubble there, in fueling a lot of flipping, also went a long way to filling the government's coffers. Which is probably one reason by bank and real estate regulations were so lax.
But I agree with your larger point: if someone borrows more than they can afford, that is a bad borrower; but if a lender habitually lends money to those who cannot repay, it is a bad lender.
Agreed, too, that there are high-ranking officials in the banking and finance industry who should be in jail. Winning in the markets is fine, but cheat is not, and there have been an awful lot of cheaters over the past decade or so.
#1 Posted by noah Body, CJR on Tue 3 Jul 2012 at 09:13 AM
Taibbi basically asks the same question about the american press as Yves:
http://www.rollingstone.com/politics/blogs/taibblog/why-is-nobody-freaking-out-about-the-libor-banking-scandal-20120703
"Why is Nobody Freaking Out About the LIBOR Banking Scandal?"
And yeah, investment banking has become more of a scam than a "productive use of capital" as the emphasis of investors has become "short term greedy".
What we are seeing is the breakdown of shareholder, anglo-saxon capitalism. They aren't creating wealth, they're capturing it and - in many many occasions - outright stealing it.
#2 Posted by Thimbles, CJR on Tue 3 Jul 2012 at 01:48 PM
It would be good to review this old article you posted a while back:
http://www.salon.com/2011/03/29/failure_of_shareholder_capitalism/
which makes reference to this by Martin Wolf:
http://blogs.ft.com/economistsforum/2007/12/why-the-credit-html/
"First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up."
There are other good bits to digest from behind the paywall.
#3 Posted by Thimbles, CJR on Tue 3 Jul 2012 at 02:02 PM
And there was the recent propublica piece here:
http://www.propublica.org/thetrade/item/how-shareholders-are-hurting-america
And a study I stumbled upon here:
http://www.outsidethebeltway.com/has-the-growth-of-the-financial-sector-harmed-the-economy/
Which basically says that the shareholder/asset ascendant nature of anglo-saxon capitalism has empowered the managers of capital to the denigration of everyone else.
This has led to a migration of talent away from other forms of industry to the finance sector.
This has meant that the short term reward mindset of finance is not only stealing the capital away from other industries within the nation, it's stealing the minds.
Our world cannot sustainably function motivated upon the desires of the vampire class.
#4 Posted by Thimbles, CJR on Tue 3 Jul 2012 at 02:14 PM
On the subject of Libor, rithholtz goes on a quote rampage:
http://www.ritholtz.com/blog/2012/07/the-big-losers-in-the-libor-rate-manipulation/
Snippet:
"Perhaps worst of all has been the double standard set by the federal government. In 2008 when the world’s biggest banks stumbled toward insolvency, the U.S. Treasury stepped in to inject capital through the Troubled Asset Relief Program (TARP). TARP allowed the banks to offload or restructure their most toxic holdings, including many derivatives like interest rate swaps.
Four years later no such relief has been mobilized for cities, counties, and public agencies suffering from the toxic interest rate swaps they have been forced to hold. In its size and severity, the rate swap crisis rivals other discrete financial injustices related to the global economic meltdown of 2008. Unlike these other crises that have received enormous attention from the media and reform-minded officials, the foreclosure crisis for example, the rate swap crisis has remained hidden from public scrutiny, left to fester."
#5 Posted by Thimbles, CJR on Thu 5 Jul 2012 at 12:25 PM