Bet Against the American Dream

Ever hear about a company named Magnetar? No? ProPublica has a good piece on their role in the financial collapse:

...A few savvy financial engineers at a suburban Chicago hedge fund helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

How Magnetar pulled this off is one of the untold stories of the meltdown...

Read the rest (via). Felix Salmon has more.

What Magnetar did was legal at the time. But there will always be greedy people who don't mind screwing over others, or their own entire country, or the entire world, for short-term personal profit. It's folly – or irresponsibility, or further greed and corruption - not to address this. Our financial system still allows and even encourages a sort of reckless, sociopathic, narcissistic, nihilistic greed. It's not that nobody knew that this mindset was extremely dangerous, but the folks running the show wanted the party to continue. And the global economy tanked as a result. It's the same greed, vanity, corruption, narcissism and recklessness that's interfering with efforts to prevent another collapse and other acts of financial destruction.

This weekend's This American Life episode "Inside Job" covers ProPublica's work. They also commissioned this nifty little song:

Bet Against the American Dream from Alexander Hotz on Vimeo.

 

Corporate Theft

I'll be linking some pieces on Michael Lewis and his new book on the Wall Street collapse later, but this is a fantastic Daily Show segment on how some major corporations get away with what should be illegal.

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Lehman's Dirty Moves

This segment on Dylan Ratigan's show with Eliot Spitzer does a pretty good job of explaining Lehman Brothers' dirty moves:

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One of the first major stories on Lehman Brothers was The New York Times' piece "Report Details How Lehman Hid Its Woes." Their Lehman category has many more articles, and is sure to have more.

After the Enron scandal broke and the key details emerged, The Washington Post did an excellent five-part series it ran over the course of the week. I remember I saved them up and read them all at once, flipping back though the articles to look at charts and key passages again. I also checked out one of the earlier books on the Enron scandal from the library (at least two other good ones came out later). The Enron accounting scams were complex and their mechanics were difficult to understand because they were designed to be that way. One of the better scenes in Michael Moore's (good but uneven) film Capitalism: A Love Story shows him talking to a Wall Street guy who's trying to explain how Credit Default Swaps and some other fancy financial tricks work. The guy also says that if, as a regulator you came into a Wall Street firm and could actually understand what they were doing - the implication being you could put a stop to it - they'd offer you a job.

It's not that hard for financial companies to make profits, even ridiculously high profits, without completely screwing over their customers and destroying the world economy. There needs to be much greater oversight of these companies, whether it's through new regulations, greater enforcement of the existing ones, or a robust Consumer Protection Agency. Really, all three are needed. However, investigating, prosecuting and imprisoning some of high-ranking scoundrels at Lehman Brothers and other firms would also go a long way toward curbing this sort of unethical, reckless behavior.