Tuesday, 17 August 2010

The Devil Is In The Big Fat Details

We can agree that the traditional image of the devil in our minds is red, burgundy, red, and gold. A picture of the devil in his environment would most likely include these colours.

And if you watch BNN or read the business section, you cannot go too long without hearing about Goldman Sachs or China. These two entities fly the above mentioned colours, and although they don't "bedevil" me the way they do many left and right pundits, they are so grand that they definitely must be included in the details of a current economic picture.

Pursuing our religion/capitalism theme from where we left off in the last post, today's inspiration came from a very interesting analysis I read about the investment back Goldman Sachs. In case you are not familiar with the Wall Street powerhouse, I will give you a pop-rock populist version of the critique against them here and I also recommend googling the Vanity Fair analysis, "Too Bare-Knuckled to Fail". While the Rolling Stone analysis may win the shock value award, having best captured the public's mood and retained it's imagination & indignation by qualifying the firm as a "vampire squid", the critique I read today "Presidents come and Go, But Goldman is forever" was considerably more nuanced, and meshed very much with my recent theme about what is accepted as knowledge and who has monopolies on it.

The article spoke of the now infamous "quants" (quantitative analysts), who used complex math to sell and trade Credit Default Swaps and other exotic vehicles which are basically figments of our imagination but allow rich firms like Goldman to speculate and, well, get richer. It went as far to say that those who propogated these so called "financial weapons of mass destruction"'s knowledge of numbers is similar to middle age priests' knowledge of latin. It outlined great examples of Goldman's truly cunning and manipulative behaviour. It was taken to court for simultaneously continuing to sell clients these same "Default Swaps" while pulling out of them in the market and betting against them, when the tide started to turn on the American debt house of cards in the fall of '07. More recently, it has helped finance Greece's bailout while hedging it's own bets on it failing. And before you think that a couple Manhattan manipulator evil geniuses conjured this all up, look at the company's global roster. You'll notice that the past and present financial and economic elite of any economically significant nation work or have worked for "the firm", as it is sometimes referred to. And "the firm" always wins in court, as it did in the CDS case, not thanks to a corrupt judge who is going to take off his mask to reveal himself a reptile, but by his affirmation of two simple and accepted principles in the legal system which are 1) Caveat emptor/buyer beware and 2) all a company is responsible for is making good on its fiduciary resposibility to clients, shareholders, bla bla bla. Goldman is just the most notorious example of what is endemic in an evil system because it is the smartest at taking advantage of it. Which is really all really smart people and companies do, take advantage of oppurtunities noone else sees and maximizing the utility of their assets (one of which definitely is in this case all those people in high places). Politicians may think there is short term gain in lambasting such a company, but any observant person would no that this causes the firm no harm, in addition to being inherently ridiculous coming from the structure which colludes with and supports it.

So what does that mean? That there's a big, evil, international Goldman-political cabal conspiracy? That a massive international brigade needs to march on Manhattan and return with the "traders" (or traitors, if you prefer) clapped in irons and 70 million a year CEO Lloyd Blankfein's bald smirking head on a stick? No. It means we are pissed off that a firm like Goldman is so good at what it does, has capitalism figured out so well, that it cannot actually be stopped. It won't be stopped. It has the smartest people working for it, or rather people who are smart enough to bet down as well as up and buy into the firm's evil genius-pseudo mysterious corporate culture (go to their website and click on "oppurtunities"). It plays both sides against each other, enriches itself to ever greater heights, and laughs at the indignation of governments whose leaders it will poach for employment when their done in politics.

I have recently quit reading the news, or attempted to, because I realized that the day to day sniping of politics and the stock market does not really tell us anything about the state of the world - it's as much of a distraction and as inconsequential as professional sports. To understand, you have to look at the big picture

The oppurtunities noone else sees are in fact ones that many more people see now, and in the long term should actually make things difficult for the financial sector, even for "the firm" which calls itself "long term greedy". Before the 1980s, companies had to be established and profitable before they could be traded or invested in; government deregulation made it much easier to speculate on startups(i.e., bet on things that may or may not succeed or even exist, which added a lot of risk that wasn't there before). Before the 1990s, the government used to let people rent apartments until they could afford market rates on mortgages, but then to give an artificial boost to the sacred "free-market" economy they supposedly held so dear, they just started cheating and keeping the rates low all the time so everybody could speculate in real estate, creating past and current bubbles. Finally, before the 2000s, stock trading was a lifelong trade reserved for stuffy men in suits who took the subway downtown to the actual floor of the stock market. Now any schmuck with a computer can bet like it's a casino, and it is. What's made the stock market identical to a casino is you can now bet both ways, which was banned temporarily by the U.S. and Britain, more cheating by supposed free market governments.

These are not so much trends based on any viable economic data as they are fashionable fads which have retained their popularity. But if you think the veritable army of suits they gave birth to in North America - an ever expanding pile of brokers, traders, agents, administrative staff, salesmen, middlemen, fund managers, and advisors - can sustain indefinitely, each getting their cut for a single family, luxury vehicle and swimming pool - at Goldman and everywhere else - you're sadly mistaken. There will be no more double digit surges of economic growth that could justify the existence of such a piggyback chain of highly paid people's livings - and yet the system's assumption rests on the hazy half-hearted hope that it will, even though on the business network today there was a professor openly speculating on whether America was bankrupt and was actually saying some pretty real shit to the fluff, head in the sand host before she cut him off for commercial. So Goldman may be laughing now by having all its bets covered but I bet it will not have the last laugh. While it may seem like a "devil" for it's actions in the economic collapse, it was merely profiting from the circumstances described above, which are the real "devil in the details", just like everyone else. Better than everyone else, in fact, which is why it get's singled out.

Is my ranting and raving at least followed by some solutions, some controls the government can create to intervene with and stop the madness? Actually, no. The government getting tough and cracking down and putting a stop to this will change nothing. Economies work when they are compact, local, and manageable, in other words when the people involved with them can see what they are acting in and the benefits for their community. By placing the economy far away, all our stuff together in the hands of governments or bay street or wall street, we have guaranteed its irrelvance and redundancy because they cannot possibly account for what is actually happening and we cannot possibly know what they are doing. They also don't want to admit what is increasingly common knowledge. So the government ham fisting a clumsy solution will have adverse effects and cause just as much if not more shit. Don't believe me? Look at devil #2, China.

The MSM have a love hate with China because of the role it plays in North America's economy (premier supplier of useless crap/premier creditor of America, which is the premier buyer of Canada's exports). But unlike North America, China doesn't give a shit how its people earn a living or have this ridiculous cult of home ownership. So they cracked down hard on banks and told them they were tightening the credit rules and wanted to see their balance sheets. So the developers and banks, very aware of the acute demand for property and eager to fuel a red hot surge in values, started packaging real estate debt to sell to consumers. The number has passed from zero to 400 billion dollars in less than 2 years, and property loans have increased 40% in the last year alone. So while columnists withered away at the government's complacency and looking the other way in North America, an authoritarian government worried about runaway bubbles that clamped down on the other side of the world produced the exact same result - a bubble. And if their economy wasn't in so deep with North America's debt, financed by property and consumer debt speculation, then they would have more power to stop everyone from thinking they could own a house and an eager bank/developer speculation machine only to eager to provide them with that illusion. With bubbles, crashes, and unsustainable economic structures, columnists and do-gooder public opinion populists need to turn down their rhetoric to Goldman, China, or whoever and realize that they are not the "devils" or the problem, but its these devilish details inherent in what they're involved in that are.

(Oh and by the way, I found out GOldman's logo is not actually red or gold. It's blue and white. I guess I got them mixed up with Wells Fargo or something. Oh well, they're evil blue devils then. Like facebook. Mmm bwa ha ha ha ha.

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