Where Did Wall St. Get the Attitude That It Deserved to Rip Us Off?
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This article first appeared on TruthDig.
"For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well. Middle-income households made less in 2008 than they did in 1999. And the net worth of American households … has also declined compared with sharp gains in every previous decade since data were initially collected in the 1950s." --"Aughts Were a Lost Decade for U.S. Economy, Workers," Washington Post, Jan. 2, 2010
"Rep. Henry Waxman: You have been a staunch advocate for letting markets regulate themselves. Were you wrong?
"Alan Greenspan: Yes, I found a flaw in the model that I perceived that was the critical functioning structure of how the world works.
"Waxman: In other words you found that your view of the world, your ideology was not right.
"Greenspan: Precisely." --Testimony, House Oversight and Government Committee, Oct. 23, 2008
My cardiologist recently said I must either pay $50 to ask him a question about my potentially serious heart condition outside our annual exam or schedule an appointment so he could bill Medicare $50 for it. "Schedule an appointment just to ask you a 30-second question?" I asked incredulously (I live abroad part of the year). "Look," he exploded, "you love Medicare because you see your doctor for free! But when they talk about `cutting Medicare,' they're cutting us, the doctors! And if they cut payments to us, we are going to reduce services to you! I've got bills, kids to put through college! I'm not in this for my health, you know!"
While I appreciated his honesty (I'd hate to live under the illusion that he was in it for my health), what most struck me was the indignation in his voice. Medicare costs may be skyrocketing and must be controlled to preserve the system. But try to save it by partly reducing doctors' incomes? "How dare they!" was his clear attitude.
This attitude of entitlement comes across loud and clear in Michael Lewis' "The Big Short," whose greatest value is to bring us the insights of those who made hundreds of millions of dollars by betting against, i.e. going "short" on, the unsound subprime mortgage packages peddled by Wall Street titans and blessed by policymakers like then-Fed chief Alan Greenspan.
Lewis’ protagonists, among them Steve Eisman of FrontPoint Partners and Mike Burry of Scion Capital, a one-eyed doctor with Asperger’s syndrome, speak in wonder and disgust of the arrogance of those top Wall Streeters—from Goldman Sachs, Morgan Stanley and Bear Stearns—who knowingly repackaged home loans made to thousands of people who could not afford to repay them, kept rating agencies like Moody’s in the dark about their shoddy content, and then resold them to institutional investors around the world after claiming that the rating agencies had certified them.
Eisman and Burry clearly understood the financial system better than the Alan Greenspans and Henry Paulsons who were supposed to regulate it. When they talk, the rest of us need to listen.
Lewis reports that Burry had been “the first investor to diagnose the disorder in the American financial system. Complicated financial stuff was being dreamed up for the sole purpose of lending money to people who could never repay it. ... To Michael Burry, the subprime mortgage market looked increasingly like a fraud.”