Crazy -- Romney Advisor Says Spiraling Inequality Is Good for the Country
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It's standard practice during the election campaign for presidential candidates to publish an autobiographical account of their rise to stardom or their philosophy of life and politics. However, in keeping with his commitment to innovative business practices, it seems that Mitt Romney has outsourced this task to Ed Conard, one of his former partners at Bain Capital.
In fairness, it is not clear to what extent Romney shares the views of his former partner, but Conard surely understands that his book [Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong] will get attention because of his proximity to the presumptive Republican nominee. And, on the off chance that Conard does think like the man who likes to be able to fire people, this book should be taken seriously.
There is much in this book to infuriate those who don't get their kicks from firing people. To start, Conard has a tale of the housing bubble and the ensuing crash that places all the blame on government efforts to promote homeownership.
Making this case requires serious abuse of the facts. In arguing that the banks did not know that they were passing along fraudulent mortgages, Conard asks why they would hold so many mortgages on their own books if they knew they were trash. The obvious answer is that they couldn't sell them. This was the whole point of the collaterized debt obligations and later the second generation collaterized debt obligations. The goal was to hide the garbage.
This was like a game of musical chairs. At some point the music stops and someone is left holding the trash. It wasn't by choice that Lehman, Citigroup, and the rest were still holding tens or hundreds of billions of dollars of junk mortgages in 2008. They just couldn't find enough suckers.
Conard is no more successful in trying to turn reality on its head and make Fannie and Freddie the main promulgators of junk mortgages in the peak years of the bubble. He cites data that show the exact opposite. The vast majority of the junk mortgages were securitized by Citigroup, Morgan Stanley and the other investment banks.
Conard is either being dishonest with his readers here or has some serious cognitive problems.
Another novel feature of Conard's book is his contention that there have been substantial gains in wages over the last three decades. The fact that wages for most workers have barely outpaced inflation has been well documented (see here and here for example) . Conard does a neat two-step around this basic fact by showing substantial wage gains for African American men and women and white men and women.
There are some problems with his numbers, but the implication is that as our labor force gets less white and more female we should expect wages to fall. In other words, if the wage distribution was exactly the same, but we replaced all the white men with African American women, then Conard would be touting huge wage gains for the workforce. It's great to see groups that have been the victims of discrimination making progress (in reality, the gains have not been much), but this does not substitute for economy-wide wage growth.
But the real meat of Conard's piece is the glorification of those who have gotten incredibly rich, like him. Conard's celebration of the rich and his airbrushing of what they did to get there is sufficiently out of touch with reality to be scary.
Did Conard really miss the story of Fabrice Tourre (a.k.a. "Fabulous Fab") the Goldman Sachs mortgage trader who put together collaterized debt obligations that were designed to fail and then hawked them off on unsuspecting clients? Does he not know about the flash traders who make fortunes by designing sophisticated programs that allow them to front-run major trades? (This means that they can detect major trades and jump in ahead, thereby capturing some of the profit.)