In her book Econned, Yves Smith showed the role Magnetar hedge fund played in manipulating the last two years of the sub-prime bubble. By going in and buying the worst of the worst and then betting against it with derivatives, Magnetar innovated the classic pump and dump scheme, riding off with hundreds of millions of dollars. The President calls this “savvy” business. Smith more recently connected Magnetar with Obama’s Chief of Staff Rahm Emmanuel. Rahm’s made a political career out of bringing Wall Street money to Democrats, first with the Clintons, and then in the Congress. It has been the greatest aspect of his success in politics.
Again, this all shows the great elements of fraud and corruption that are missing from the “debate” on the financial system. Of course, it’s lacking because our politics are bought and sold by Wall Street and other assorted interests, which no one seems to argue about now, though no one seems to want to do anything about either. Any suggestion a political process, which can’t deal with fraud and is drowning in money from Wall Street, is going to come up with any sort of financial reform is simply ludicrous. Dylan Ratigan has put up an excellent video completely catching the zeitgeist, Change the Law. It’s a for the times variation of the 1970′s “School House Rock” video, I’m Just a Bill. My suggestion is watch both.
Earlier in the week, I attended the Levy Institute’s forum on the financial mess. Eliot Spitzer spoke and it made me want to cry. In fifteen minutes, every aspect of what’s missing from the talk of the financial debacle, he nailed. Fraud, clawing back the outrageous bonuses, the capture of the regulatory agencies, the complete corruption of the NY Fed, and the overall costs to the economy, Spitizer talked about. His most important point on the current financial regulation “debate” was how the banks’ public hemming and hawing about an already weak “Consumer Protection” plan was a giant bait and switch, distracting from all the other more essential elements the banks’ lobbyists and elected officials are writing into law. He also made the great and essential point against those arguing for keeping the mega-banks together, that the most innovative aspect of the American economy of the last thirty years happened by breaking up AT&T. The only way we are going to get reform in the American political economy is by breaking up power, both corporate and government.
Finally, no one can argue the Fed’s continued money pumping isn’t having an impact. JP Morgan and B of A announced great profits on their trading desks, but continued problems with their loan portfolios. We seem to have innovated our financial system into a variant of the 19th century boom-bust system, but, we now have the Fed to pump money in as each bubble pops. How this all works out, well, place your bets. The Democrats are betting it will be good enough by November they can keep control of the Congress. And who am I to argue? The political skill of the Democrats is immense. Who else could take a completely unpopular group like the Republicans — after 30 years, a completely exhausted and discredited political force — and with control of the presidency and large majorities in the Congress, within a year, bring the Republicans right back into the game. That is a sublime politics beyond this fool’s simple imagination.
Archein