The price of everything

Waking up in a cold debt

“UK Probe Summaries May Damage Banker Reputations”

 

-       Bloomberg headline.

It is difficult to see how bankers’ reputations could possibly become more damaged. That would be like Hiroshima in August 1945 becoming more destroyed, or Nick Clegg in 2011 becoming more unpopular; it may not simply be possible. Perhaps the British Bankers Association should consider a merger with the English Collective of Prostitutes: that might make them look a little classier. Nevertheless, the world’s most overpaid wealth destroyers are doing their damnedest to continue to court unpopularity, if the latest instalment of JP Morgan’s bonuses is any guide. Meanwhile, Matt Taibbi, he of the infamous Goldman Sachs ‘vampire squid’ coinage, has returned to the fray with ‘The Real Housewives of Wall Street’ (caution: parental advisory). According to Taibbi, Christy Mack (wife of Morgan Stanley’s John Mack) and Susan Karches (widow of Peter Karches, a Morgan Stanley president) made an upfront investment of $15 million that quickly earned them $220 million in cash from the US Federal Reserve, most of which would be used to purchase student loans and commercial mortgages. These loans were apparently established so that Christy and Susan would keep 100% of any gains, while the US taxpayer would eat 90% of the losses. So far, so bankerly. But the more Taibbi reveals about recent Fed purchases, the more surreal the picture becomes. We know the US administration stepped in to support the US domestic auto industry. But why buy securities of foreign carmakers, including BMW, Volkswagen, Honda, Mitsubishi and Nissan ? Or extend nearly $5 billion in cheap credit to Toyota and Mitsubishi ? Or extend billions in loans to the Central Bank of Mexico, the Korea Development Bank, and $35 billion in loans to the Arab Banking Corporation of Bahrain, whose major stakeholder is the Central Bank of Libya ? Colonel Gaddafi, per Taibbi, received more than 70 loans from the Fed. Has this mad institution suddenly become the Global Federal Reserve ?

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Government agents

“Barclays’ new chief executive is considering increasing the bank’s risk profile, in order to hit profitability targets over the next three years..”

 

-       Patrick Jenkins, The Financial Times, surprisingly not from its April 1^st edition.

 

“The budget deficit will clearly be below forecast. The country is doing its job and doing it well. Portugal will not request financial aid for the simple reason that it’s not necessary.”

 

-       Portuguese Prime Minister, Jose Socrates, 11 January.

 

“The “overpaid” fund management industry is destroying $1,300bn of value annually, according to an unpublished draft report conducted by IBM.”

 

-       FTfm supplement, April 4^th.

 

Assessing the causes of the worst financial crisis since the Great Depression, widely but erroneously believed to be behind us, the common public response has been to single out bankers as the constituency most responsible for malfeasance, malinvestment and generally malodorous behaviour. But while bashing the bankers provides some form of grim relief for the increasingly beleaguered middle classes, they are merely a necessary but not sufficient target of the public’s wrath, and not the sole culprits behind the crisis. It’s like the dilemma of being faced with Adolf Hitler, Joseph Stalin and Peter Mandelson in a prison cell, and being given a gun with only two bullets in the chamber. (One possible resolution: shoot Peter Mandelson, twice.) Yes, we all now know that without dodgy mortgage brokers and venal lenders, foolish borrowers could not have been allowed to take out idiotic loans; that without dubious investment banks, that pyramid of idiotic loans could not have been repackaged and redistributed to idiotic investors; and that without conflicted ratings agencies, those repackaged idiotic loans could not have received the imprimatur of investment grade ratings when those same repackaged loans were technically, in the words of Richard Bitner (‘Confessions of a subprime lender’), not so much chicken salad as chicken s**t.

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