Is she a villain? It rather depends, doesn't it?
Scenario #1: she's angry because she found out he had an affair, and decided to kill him "by accident" for the insurance. Scenario #2: she thought she was stepping on the brake, and stepped on the gas instead. The former is a crime, the latter a tragedy. But you can't divine which simply by knowing that something terrible happened.
So I confess I'm slightly puzzled that Barry Ritholtz is puzzled by my assertion that "financial crises don't offer villains":
I don't really get Megan McArdle when she makes a statement such as the one above. It was in an article critiquing Matt Taibbi and defending Goldman Sachs.
Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for. And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.
Ritholtz is not, in many of these cases, describing villainy. He is describing "being wrong", which is not a crime, thank God. Villainy involves people who know, or should have known, that what they were doing was likely to lead to the awful results.
I mean, you can quibble and say "You should have known that that was the gas pedal", and indeed you should have, but if, for whatever reason, your senses deluded you, you're not a villain. No, even if you were thinking about the presentation you had due at work--or how angry you were at your husband for having a fling with his secreatary--rather than concentrating on your driving.
When something is common enough, I think it definitionally isn't villanous. It may be a practice that should be fixed--we should all be more careful when starting our cars, I'm sure. But most of us have, at some point in our lives, accidentally stepped on the gas instead of the brake. And in the overwhelming majority of cases, this is not a huge problem, or even a problem at all--we run into the curbstone, or roar out of the driveway a little too fast. We don't punish people merely because, through a fluke of circumstance, the one time THEY did it happened to be fatal. Or at least, we shouldn't.
Because of course when very bad things, like Great Depressions, happen, we do indeed go looking to prove that people who did the wrong thing at the wrong time must have been awful, awful people.
I have no reason to love Goldman Sachs, and I don't. I didn't like them when I was interviewing for investment banking internships in business school (worst interviews by far were sponsored by Goldman Sachs and Bear Stearns). I dislike the way their alums, and indeed, their current employees, have permeated our politics and our financial regulatory system like some sort of insidious fungus. I have been repelled by Jon Corzine ever since he spoke at my business school graduation ceremony, where he jovially described how he had cheated his way into a diploma by getting his girlfriend to do his final project for him. He seemed to think this was funny.
I am excessively unpleased with the way the banks in general, and Goldman Sachs in particular, are not even a little bit contrite about the fact that the American taxpayer had to bail them out of a gigantic mess they helped create. They have not returned any of the squintillions they made off creating the crisis, offered a heartfelt apology, or even sent flowers and a faux-sincere note. And the salaries they are preparing to pay themselves this quarter by way of celebrating the fact that they didn't actually succeed in reducing a once great nation to barter? I can't even think about them because I am afflicted with borderline hypertension, and do not wish to start medication before I have to.
But while it is irksome that bankers thought they were geniuses who had somehow magically made risk disappear, while it is vexing that they made so much money taking so many systemic risks, none of these things are actually illegal. And while their arrogance and greed were certainly a necessary precondition of the crisis, they were not in any way sufficient. They needed cooperation from moronic Asian savers who lent them the money, regulators who thought--just as the bankers did--that they'd gotten too smart to have a financial crisis--and homeowners who had come to view homeownership as a way to get rich without working. Everyone who said "renting is throwing your money away" is a guilty party in this. And that's . . . almost everyone.
I'm well aware that if my financial and romantic situation had been different in 2005 or 2006, I might well have bought a house that would now be in deep trouble, because, well, everyone's doing it, and things that everyone's doing seem inherently safe. Which is why no one parent can let their kid wait at the bus stop alone, but they can all collectively allow the little tykes to take up rock climbing, or get behind the wheel of a car when they turn fifteen.
Once you have tens of thousands . . . or tens of millions . . . of people in the dock, you don't have villains. You have a system that has gone badly wrong.
Oh, the crisis has produced villains, or rather, exposed them. Bernie Madoff, Allen Stanford, et al are genuine human sewage as far as I can tell. But the crisis would have gone on just the same without Bernie Madoff, and Bernie Madoff would have gone on just the same without the housing bubble. At any given time, there is a certain amount of garden variety financial fraud going on. It tends to emerge in financial crisis not because they're actually connected, but because falling asset values expose the con.
There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis. Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis. Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates. Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth. What would be different now? Nothing of any importance, as far as I can tell.
You can point to many people--thousands of bankers, tens of thousands of realtors and mortgage brokers, millions of homebuyers--who did things I really wish they hadn't, blinded by greed and wishful thinking and arrogance. But when the action of any one person, or firm, requires millions of counterparties taking their own stupid risks, I don't see how you can really name them the villains of the piece.
This will not, of course, please anyone who wants me to tell them how and why we should get the bankers. For them, the important thing is the conclusion; since we already know it, it is a trivial matter to assemble whatever evidence might help us get the bankers. And since I am not providing them with convenient reasons to get the bankers, it therefore follows that I must be a paid hack protecting my corporate masters.
Me, I think it's possible that we should get the bankers, and I'd certainly like to get the bankers out of government, though I'm not sure how you find out what is going on in the banking system without, like, asking some bankers. But I think the case needs to be a leetle bit tighter than the fact that bankers make stupid decisions, bankers get paid a lot, and we just had a financial crisis. I'd like to see someone make the case that they did things that were actively, knowingly, illegal and morally turpitudinous, rather than simply totally moronic. Because with the total moron thing, they had an awful lot of company.
A civilised nation will spare their wives and children; but do what you like with the bankers.
Putting the car into gear while the engine is at high rpms kinda gives away the intent.
I was going to quibble that cars don't go out of park without the brake being on, and that it is absolutely impossible to make the described mistake in a manual unless one happens to be deaf and very drugged, or throw in some joke about Megan's driving skills, but all of that will take away from the overall point of the post, which I consider very valid.
A very sizable portion of the population will look for at-fault party rather than a solution. I think that its much easier to understand.
You could easily make the mistake in an automatic by going forward when you meant to go in reverse or something similar. People don't usually kill each other this way, but they do often turn themselves into good customers of their local body shop.
Ken, back in the olden days, when I learned to drive, cars could indeed go out of park with one's foot not on the brake, or even pressing the gas. This is the most likely explanation for the Audi 5000 "sudden acceleration" problem.
Today's cars have a safety device that prevents the car from leaving park unless one's foot is firmly on the brake, but this feature was added because accidents of the sort Megan describes did indeed take place.
And while we're getting the bankers out of government, let's also get the politicians out of businesses. I don't think that Barney Frank meant to hurt anyone by pushing Fannie and Freddie to lead the way in lowering lending standards - he just wanted to buy votes. But surely one of the big lessons here is that politicians shouldn't be micro-managing business decisions in such a backdoor way.
You are exactly right, Megan. Being wrong is not villainy. The other error about Ritholtz is that he assumes and assigns certain gatekeeping duties and roles to private parties that actually were not their duties or roles, they were Washington's.
I don't think you have to have done something illegal to be a villain in the financial crisis. What about investment banks shunting individuals towards investing in mortgage debt as they unwound their own positions? As long as they disclose the risks in a long wordy document, there's nothing illegal about that.
There is supposed to be a Chinese wall between banking and retail. Collusion between those two groups is securities fraud. The two of them doing different things is the opposite of securities fraud.
Now, in practice, that wall may be (is) violated. But you can't punish people for breaking the wall, and also for not breaking the wall.
Innocent is a relative term. But lawsuits are not a good indicator; people sue when they lose money. There were a ton of lawsuits following hte tech bubble, but precious few judgements for the plaintiff.
Another group of fools paying lawyers to try to get some gain from somewhere there wasn't.
Yes your Honor, I did believe that a dog food store on the internet was worth that much.
Derek
Good line about those who think renting is throwing away money being at fault.
You could have just said,
If GS is a villain than everyone who said renting is throwing your money away (or invested in those who said such) is also a villain.
And still I'd wager 80% of the US feels on some level that renting is indeed throwing away your money.
I agree that being wrong is not an indicator of villainy and that you can be a villain without breaking the law.
I don't agree with: "When something is common enough, I think it definitionally isn't villanous." That really depends on the circles you are in (or on a wider scale, the society). To take an extreme example: it may have been very common in 1930s Germany to slander Jews; but this common-ness (or, for that matter, its legality) did not reduce the moral turpitude of doing so.
I don't know if this example is analogous (of course on a much less-villanous scale) to the financial situation: maybe all the bankers were wrong and not villains. But I don't see how the fact that a large portion of non-bankers were wrong (often because they, you know, listened to bankers for their own banking knowledge) offers us any evidentiary aid here.
Let me put it a different way: slaughtering (or slandering) jews is always and everywhere wrong. Stepping on the gas, not. Making loans, not. Making stupid loans, not. Making stupid loans to your brother in law that you know he won't repay--well, not if it's your money.
Fair enough, my example was extreme. However, I'd say: Making stupid loans, that you know are stupid loans, because you rationally believe that the government will cover your risk and let you keep the profit, is always and everywhere wrong. Not anywhere near as wrong as the villany in my example, but still, wrong. Is that what the bankers were doing? I don't know. But if any of them were, then those bankers were doing wrong regardless how commonly it was done.
Ah, but a) it's not clear that this happened, and b) this is now what we want them to do to keep homeownership high.
I agree with both those points. There are many ways that a given action may be justified: even going back to my extreme example: an Allied spy my go-along with some Jew-slander in order to get himself into a postion where he can bring down the Nazi regime. Depending on the circumstances, that might be justified.
But 'it was very commonly done' is not a way to justify anything.
Usury existed for ever. They used to be illegal. They are now legal. They used to be at least condemned. Now they are defended.
The problem here is that nobody expects to walk into a bank, opening at a normal street corner to meet a usurer. I'll put megan's "making a bad loan" this way - being a usurer but pretending to be a regular legal decent lender who work six feet under = cheating, evil, and villain. The only reason they are legal are because they bought the cops, so to speak.
I know enough Goldman Saches people that most of them think everything they did was ok. In fact they thought they never needed the bailout, or so they were told by their villain bosses. Employees of a mega-corporation are in my experience more brainwashed and loyal than wingnuts.
What I was getting at in my original objection (which was, and is, quite limited. I agree with most of Megan's point in the main post) is grasped well by David Brooks in his January 26, 2009 column:
"'Bankers, for example, used to have a code that made them a bit stodgy and which held them up for ridicule in movies like “Mary Poppins.” But the banker’s code has eroded, and the result was not liberation but self-destruction."
http://www.nytimes.com/2009/01/27/opinion/27brooks.html
Megan said that if anything is done commonly enough that it is not villanous by definition. My ham-fisted Nazi example was a poor attempt to object to this notion. But my point is: the fact that Brooks' bankers' code eroded accross the entire profession, does not mean that any individual banker who eschewed that code was any less villanous than he would have been if he was the only one who had done so.
I wonder. Do realtors and mortgage brokers really have any regret over making money writing paper that was doomed unless housing prices went up? I don't see any evidence that's true. In fact, everybody I know in that business is angry because the government isn't jumping in to provide "down payment assistance" to people who can't afford a 3.5% down payment.
GS is really asking for it posting such large profits when everyone else is out of work, especially given they've only just paid off the money the rest of us lent them to keep the entire system from going belly up. Whether or not they've done anything illegal or immoral will end up being secondary to political concerns.
Personally I'm getting more sympathetic to the gold standard crowd. It seems like a lot of people have made enormous amounts of money exploiting the insecurities in the present system.
"Do realtors and mortgage brokers really have any regret over making money writing paper that was doomed unless housing prices went up?"
I'm not sure, though I know plenty of people in that business really did believe that housing prices would keep going up, at least enough for people to be able to maintain their mortgages.
First, there are areas between being wrong and being a villian. One such area under the law in criminal negligence. One definition of that revolves around what a reasonable person with the same knowledge would have done.
Imagine a company that is in the market for food. It learns that the food it buys and sells is poisonous. Nonetheless they continue selling this food to unsuspecting clients. Not only that, they know that eventually it will come out how harmful this food is so they short these food products on their own accounts so when the harmful nature is revealed they will continue to profit.
This company would CLEARLY be found guilty of criminal negligence as any reasonable person would not have knowingly sold people poisonous food, but replace food with CDO and their just "wrong?" Even if they escape any punishment by the courts, are they really any less villainous?
Legality and villainy need not be mutually exclusive.
Surely you're bright enough to think of something "evil" that was perfectly legal. History is full of examples. Legal just means it had the government's approval, but surely as a libertarian you realize that this doesn't automatically make something good & non-villainous. [eg's: witch trials, final solution, inquisition, and heck, this wouldn't be the internet if I didn't point out that even Darth Vader was really just a civil servant doing his gov't job]
As a Lord, Darth Vader was arguably a stakeholder...
"It learns that the food it buys and sells is poisonous"
For your analogy to make any sense, I assume you mean "poisonous" as in "high fat content and bad for your arteries, so that there's a chance that eating large amounts of the food might someday cause a problem". And the crime here is that the fat content of the food was in small print on the back, rather than in huge print on the front along with the least attractive packaging possible.
http://en.wikipedia.org/wiki/Fugu
People pay very good money to eat a fish that could kill them. Maybe there should be a regulation.
It is very clear now that these things were worthless. There were individuals who said so at the time and were viciously attacked and smeared. And were a target of government once things started falling down. Short sellers. Remember that? They were the ones that thought this whole thing was a lie and a scam. Remember how they were the problem? There has to be a law against people like that.
A highly regulated market will have higher risk of losses simply because investors will trust.
Don't trust. Not everyone has learned that yet from this mess. We will. Then we won't do the same thing for two or three years. Until the next great thing comes along that we all must buy.
Derek
Have to agree with Megan here. Taibbi seeks too many bad-intend windmills. Or so it reads. In the end I am not sure if he finds derivatives or the people who use them bad. It sounds as if both is the case and I beg to differ on both fronts. I really enjoyed the New Yorker article on Taibbi of many years ago - since then.. hmm.
On a personal note - I try to never use "greed" as a bad emotion, but I'm only human. I am utterly disheartened by what is going on in our agricultural and food industries. I don't have good words for farmers who follow The Green Revolution - I think that they are very removed from nature. But I should not try to blame ill-intend on them. It is not how I perceive them anyway. I think that they have grown up thinking a certain why and now it is their way of life. I think it is ignorant but also hard to change and only human. Consumers and politicians however - especially those who claim to be interested in ecology - them I do blame for harmful ignorance. But also not for bad motives per se. Just like the fiasco in the financial world - our ecological deficit involves many parties. Only because farmers are the ones who are destroying nature does not mean that consumers are not giving the orders. And it does not mean that anybody has evil thoughts per se.
Are people who want the houses they want rather than they can afford evil? As Megan points out - Madoff is another story and he also received appropriate treatment.
The car metaphor admits only specific intent or accident as the driver's state of mind. The implied forced dichotomy doesn't seem a very good metaphor for what could have happened with Goldman Sachs, Bear Sterns & Co.
I'm not a lawyer, so I'm way out of my league here (Rob?). Also I don't have too much time today, so I'll just cite Wikipedia:
Oblique intent: a person has oblique intent when they foresee the certainty of a consequence of their act, even if it is not their main objective.
Think of driving that car through a crowded street, killing and maiming people, because it's a great shortcut to work and you're late.
Criminal negligence - There is credible subjective evidence that the particular accused neither foresaw nor desired the particular outcome, thus potentially excluding both intention and recklessness. But a reasonable person with the same abilities and skills as the accused would have foreseen and taken precautions to prevent the loss and damage being sustained.
Same as above, but the driver is a moron and has convinced himself that he would easily dodge every person on the street.
Would you say that the driver in one or both of the examples is a villain? Perhaps not. But you really hate his guts anyway.
Some people really need villains. It makes the tragic nature of existence a bit more bearable. In some circumstances, it also lets us off the hook for our own mistakes. But that doesn't mean that scapegoating is necessarily anything other than scapegoating, whether we're extrapolating from one instance of actual criminality (Madoff = all bankers) or imagining a big monolithic group and then infusing it with all sorts of bad adjectives (the "bankers" and "Wall Street" and "rich people" and "Jews" and "witches" who poisoned the well and made the crops die).
As Edmund says in King Lear:
This is the excellent foppery of the world, that, when we are
sick in fortune,—often the surfeit of our own behaviour,—we
make guilty of our disasters the sun, the moon, and the stars; as
if we were villains on necessity; fools by heavenly compulsion;
knaves, thieves, and treachers by spherical pre-dominance;
drunkards, liars, and adulterers by an enforced obedience of
planetary influence; and all that we are evil in, by a divine
thrusting on: an admirable evasion of whoremaster man, to lay his
goatish disposition to the charge of a star!
Villains are more interesting. Ladies love outlaws and all that.
As an historian, villains also make history more fun. Howard Zinn is way more fun to read (and teach!) than somebody without such a "villainizing" agenda. Unfortunately, that doesn't make his account more accurate, informative, or enlightening. Often, it obscures more than it reveals. But it is a guilty little pleasure that satisfies our thirst for moral clarity.
But Edmund truly was villainous
"vile jelly" and all
Robert Heinlein said it best, I believe--"You have attributed conditions to villainy that simply result from stupidity" (often paraphrased as, "Never attribute to malice that which can be adequately explained by stupidity." http://en.wikipedia.org/wiki/Hanlon%27s_razor).
I stopped reading Barry's missive at "Um, Megan,...".
If I want that level of discourse, I'd hang out at the mall with a gaggle of tweenie girls.
Glad the Howard Stern fans are keeping it serious.
The gist of the comments is:
Hang every banker from the nearest lamp-pole, to feed the bloodthirsty mob.
Without perhaps meaning to, you touch upon an important aspect which makes Megan's analogy undermine her case. Let's look at this again, and replace the actors, so:
"A woman gets in her car at a stop light, and waves at the pedestrian, who is crossing in front of the car. Pressing the pedal to the ground, she puts it into gear . . . and steams forward at full speed, bouncing him off her windshield and into oncoming traffic."
Let's let our pedestrian live, more or less making a full recovery, and have him sue this woman. Can she claim that she meant to hit the brakes instead of the accelerator, thus insulating herself from any damages claimed by her victim?
Of course not. Whatever her intent, she did cause harm. It is upon her to make restitution. You can quibble about the semantics all day long (and I suspect this is the intent: labelling someone a villain as opposed to liable is a great way to muddy the waters over what is an essentially unfalsifiable claim), but in the end, no matter what you want to call her, the fact of the matter is that this woman still owes her victim compensation.
All you basically said is that there are different criteria for determining guilt in civil vs criminal courts.
What else is new?
I believe the point here is, the victim should be compensated by the driver. What really happened is that the guy who got run over ended up paying for the car damages.
It is not villainy in the sense of illegality. It is villainy in the sense of moral turpitude multiplied by the lavish rewards society bestowed upon the primary actors. For whatever reason, society decided to reward CEOs, financial gurus and the like an ever-increasing slice of the economic pie, arguably (*very* arguably) greater than the value they created. For good or ill, we decided not to regulate that and let these organizations do what they wanted. But if we rewarded them greatly, there was an implicit contract: don't bring down the system on top of our heads and cause economic devastation to millions of your fellow citizens.
And if you do? Well, maybe we won't put you in jail, but we villify you. We will curse the day you were born. We will swear never to put our trust, and allow such ample rewards, to people so clearly undeserving of it.
They weren't crooks. Those we know how to deal with. They were worse: they were the faux Masters of the Universe, playing with fire, and causing a near-conflagration. Then Mom and Dad ran into their bedroom with the fire extinguisher and prevented the entire house from burning down. So they hung their heads and looked abashed for awhile. And, seeing that the house hadn't actually burned down, they got out another book of matches and started amusing themselves again.
while it is vexing that they made so much money taking so many systemic risks, none of these things are actually illegal.
The irony here, though, is that you attack anybody who suggests making it illegal. The laws aren't in place because folks such as yourself scream bloody murder every time somebody suggests imposing them.
You may want to have it both ways, but you can't. If you oppose having regulations, then you have little cause to be critical when things go to hell in a hand basket because of the resulting lack of regulations.
Whether or not the bankers deliberately screwed up is not really the point. The point is that they did screw up, thanks to the lack of restraint. If you don't wish to regulate them, then you're as good as part of the problem.
To go back to your analogy, you simply don't care if the husband dies, just so long as the free market isn't impacted by his death. You're fretting about responsibility, while his corpse rots in the driveway. Don't complain about the stench if you don't want anyone to clean it up.
I think her points were
a. She has not seen a piece of legislation that would have prevented this crisis.
b. There is no reason to believe that a regulator would have done a better job regulating than the market has.
Both points are arguable, but I don't see any hypocrisy.
To go back to the analogy, getting up in congress and demanding that a special law be passed to make it illegal to run your car into your husband is NOT going to reduce the chances of this sort of accident occurring. If it was deliberate then it's already illegal, if it's an accident, then she wasn't thinking of the consequences.
Legislation that might work would be laws that require cars to have a safety interlock between brake and gearshift (which is, you'll note, what they actually did for the car problem). Or legislation banning women from driving automatic cars (which is what is being proposed for the financial crisis.)
On a tangent, my first car allowed me to select gears without using the brake. It was useful when getting out of deep mud.
Has Megan described this interview in a previous blog post? Given that GS is the new Skull and Bones, I'm super curious Boit their initiation rituals.
Off-topic: this is my first legitimate use of the iPhone cut-and-paste feature. Woot.
We need to get the government out of banks more so than we need to get the bankers out of government.
I am reassured that there are occasionally real bankers who do stints in government rather than all the financial regulation being left to Sheila Bair-type amateurs who have been lobbyists and Hill staffers all their lives (Even FDR bought Old JoeKennedy in to run the SEC.)
As for "villany", I read the incoherent voice of the mob on the internet - places like seekingAlpha and RollingStone are given over to halfwits peddling anti-Jew Goldman Sachs conspiracy stories (Matt Taibi is an arab by the way - I can't help think that doesn't influence his narrative, that and all the ecstasy and cryst meth he's done)
No, a bank that is competing with other more foolish bankers is not a criminal enterprise. We are supposed to have self-limiting regulations and economic constraints on banks and in a free market we would, but it is usually the government itself that takes away the naturally self-limiting constraints. Fannie and Freddie anyone?
" peddling anti-Jew Goldman Sachs conspiracy stories (Matt Taibi is an arab by the way - I can't help think that doesn't influence his narrative"
You have the nerve to decry what you view as racism...by USING racism???
You win the prize for the most moronic and sickening comment of the day.
Can she claim that she meant to hit the brakes instead of the accelerator, thus insulating herself from any damages claimed by her victim?
Yes, if she can convince a jury that she was exercising due care in selecting which pedal (or which shifter position). If a reasonably prudent driver could have done the same thing, then she can walk.
'it was very commonly done' is not a way to justify anything.
That is the essence of the "reasonable man" defense in negligence cases, or the "standard of care" defense in malpractice cases. Both justify a wrong choice by saying "anyone else in my shoes would have done as I did." It doesn't always work; the shipping industry and the optometry industry were both famously declared by courts to be negligent industry-wide for failing to do what judges though was "reasonable," but most of the time it works, because we the fact that everyone is doing something is decent evidence that it's a reasonable thing to do.
Some anecdotal evidence about how people feel Villains in Cars.http://en.wikipedia.org/wiki/George_Russell_Weller
Both points are arguable, but I don't see any hypocrisy.
The issue isn't one of hypocrisy, but of illogical inconsistency. The logic is circular at best, which is to say that it is lacking.
For one, she provides no support for the supposition that regulation wouldn't work.
In contrast, it would be quite easy to regulate mortgage markets in ways that would prevent abuse. A market that was limited by statute to long-maturity, fixed rate loans with capped LTV's and a lack of secondary debt would be fairly easy to regulate, given that real estate debt already must be recorded as a matter of law. Limit the loan products, and the pricing mechanism will work itself out.
Deregulation advocates argue that deregulated markets don't require the guiding hand of public policy. Reality has shown us otherwise, but there's still plenty of denial.
This hands-in-the-air routine is just a way to avoid responsibility. Since anyone to the left of Attila the Hun knows that the fingers should be pointed at the unrestrained-market crowd, it's easier to shrug and say that no one is at fault than it is to take the blame.
It's sort of funny to see a philosophy in action that holds the unsophisticated accountable while the professionals get a pass. Just so long as our mistakes are made on behalf of our employers and with the aid of master's degrees, everything's just peachy.
The gang that went for the free lunch? They are either villains or criminally stupid. Either way, they deserve to be locked up.
I'm tired of the whole "being stupid isn't a crime" argument. That's simply wrong. Criminal negligence is just legal speak for an act that is either criminally stupid or covertly villainous. Either way, it *is* a crime.
Adultery, btw, is NEITHER a crime NOR criminally negligent.
Nobody, other than the spouses, cares what the married people on Wall St. are doing. MILLIONS of people, otoh, care that their money is being properly cared for.
Big difference...
Adultery is, indeed, a crime in certain jurisdictions. Most notably, adultery is a crime under Article 134 of the Uniform Code of Military Justice, punishable by dishonorable discharge, forfeiture of pay and allowances, and/or confinement of up to one year.
So, you're wrong.
Good thing being wrong isn't a crime.
Are you so sure it should be?"
Where did I say that being wrong should be a crime?
Inasmuch as I'm not in the military, there is no reasonable-test that would presume I should know that adultery is a crime, in the military. Thus, it's a mistake.
OTOH, if I *was* in the military and committed adultery, then I *should* face my punishment.
And so it is with the bankers who went for the "free lunch." There is no such thing, and they knew it - or, reasonably, they *should* have known it. That's criminal stupidity or negligence, not just "being wrong."
Put'em in jail.
Adultery, btw, is NEITHER a crime NOR criminally negligent.
There was a guy convicted of adultery in VA while I was in law school. Professor brought the clipping to class. That was after Lawrence too...
My point is to distinguish between culpability, a concept that actually has some objective meaning, and villainy, which is considerably more elastic. People have broken laws and been called heroes; other people have scrupulously followed it and been called villains. With, of course, every possible gradation in between. And unfortunately for Megan, the woman is culpable whatever her intent in each of the scenarios offered.
Yes, that's a large part of it. The other part is that by arguing what is and is not 'villainy', one can play the 'you can't make me say I'm wrong' game with somewhat more plausible deniability than one can with culpability. In other words, it's a great way to muddy the waters and distract away from the issue of blame.
Muddying the waters here, and in her earlier discussion of taibbi's article.
What the bankers remind me of most is the guy at the track who thinks the fix is in, only his horse loses. Not an admirable character, but not evil incarnate.
The same thing can be said of all of us, by the way. Ever since the Great Depression and the theorizing of J.M. Keynes, we've been willing to give the government more and more power, a bigger role in the economy and more and more regulatory authority in hope that they'll provide sustained growth with low unemployment forever. That seems to be exactly what a lot of people were betting on in the last election.
Oops.
So no villains, only fools.
Not much comfort there.
Derek
Jesus, Megan, give it up already.
What's missing from Megan's analogy is the part where the husband thanks the wife for hitting him with the car, believing that the accident did him some good, and only found out weeks or months later that his injuries were fatal.
Remember - home prices did go up consistently for a very long time. Sub-prime mortgage holders did get to buy, and live in, houses they couldn't afford with fixed-rate mortgages. Investors did make huge profits buying and selling these securities for many years.
It is, of course, easy today to say "any reasonable person could see this coming." The trick, of course, is to know when it's coming and get out at the right time. I'm sure you could find some pretty intelligent analysts in 2003 or 2004 who would have told you that the mortgage bubble was going to continue for the next 5 years.
We should also remember that when the bubble burst, many folks were unable to sell on the way down (as they did during the dotcom bubble, the oil bubble, and just about every other bubble). No one saw that coming, right? Had liquidity remained during the crash, we'd be lamenting the large number of Wall Street layoffs, but we wouldn't have a financial crisis....
I think the most frustrating part of this whole mess is that Capitalism is supposed to have built in punishment. If you take stupid risks, you get taken to the cleaners and everyone figures out that you shouldn't do that in the future. We chose not to do that because of counter party risk and the fear that the bank industry would fall apart. So now we are all pissed off that these guys have money when if I did something stupid like that, I'd be living in my parents house again. Just because I'm angry doesn't mean they should go to jail though. Should the executives of GM and Chrysler go to jail for running a gigantic, too big to fail industry into the toilet? How about Ford? They barely dodged the bullet and by all standards made similar bets.
I thought Mr. Ritholtz believed that fraud (or something close to fraud) was being committed at the ratings agencies on a pretty large scale. Some stories broke late last year about supposed deals between ratings agencies and their clients to "dress up" certain paper to keep the deal money flowing.
My guess is that the practice of prettying up ratings wasn't that blatant. If it was, people would be singing more. OTOH, this is the one link in the chain where a relatively small number of people playing games could have actually been responsible for a big part of the crisis.
GraniteViewpoint,
Are you serious when you write:
"My guess is that the practice of prettying up ratings wasn't that blatant."
?
The collusion between banks and ratings agencies has been widely reported. Do you not read The Wall Street Journal? Bloomberg News? The Financial Times? The Economist? Does the name Gretchen Morgenson mean anything to you?
And yes, people are "singing." No one in America can hear them - they are too busy drooling over Sarah Palin and grieving Michael Jackson.
Wow. That's a pretty hostile response, considering we're roughly on the same side of the argument. The main point of my comment was that Megan was wrong to assert that Mr. Ritholtz doesn't know the difference between accident and fraud. Clearly he does.
In hindsight, I chose my words carelessly. Instead of saying blatant, I should have said widespread. My point was that I was skeptical that the fraud was widespread and systematic enough to cause the crisis.
When Mr. Ritholtz first started writing about this, I was convinced that either S&P or Moodys would face the fate that Arthur Andersen did in the Enron affair. Now, it appears that the collusion that's been widely reported wasn't widespread enough to take those firms down.
I still content that the singing is relatively minor, compared to the Enron case, and that if one or both of these firms were going down, we'd know more by now.
Granite Viewpoint,
I entirely disagree. The complicity and collusion of the ratings agencies in the fraud required to inflate a bubble of this size was BOTH blatant and widespread, as has already been reported. Read Gretchen Morgenson. Or Felix Salmon. Or.... you know what I mean.
The fact that these firms are not "going down" is not an indication that there was not collusion, or that they were somehow not complicit, or that there was no fraud.
It is an indication - as William D. Cohan has pointed out, that we have failed to investigate what actually happened.
The management of Enron was prosecuted. Conversely, the banks, which did far more damange, got a bailout. That's a profound and fundamental difference.
There would have been 'charity in truth,' not to mention economic stabilization, and that truth was not acknowledged and needs to be. The Atlantic's article on the Pope's encyclical finds the eloquence in that viewpoint and gives details. See also the 'Business Channel' of the Atlantic.
There would have been 'charity in truth,' not to mention economic stabilization, and that truth was not acknowledged and needs to be. The Atlantic's article on the Pope's encyclical finds the eloquence in that viewpoint and gives details. See also the 'Business Channel' of the Atlantic. (I believe the link will work in this comment).
Haven't you ever wondered why bankers being "totolly moronic" happens to have the convenient side-effect of making them fantastically wealthy (and the rest of us poorer). Why does the flux of money not go the other way in these crazy ole boom-and-bust cycles where, apparently, no one is to blame?
the blogger makes the subtle point that the banks aren't all to blame. not at all-- really it was their customers and investors who were to blame-- because if they didn't have customers or investors this wouldn't have happened! GREAT POINT! could apply to alll corrupt companies--even countries. Corrupt countries without citizens or money can't do anything bad!
as the blogger writes:
"They needed cooperation from moronic Asian savers who lent them the money, regulators who thought--just as the bankers did--that they'd gotten too smart to have a financial crisis--and homeowners who had come to view homeownership as a way to get rich without working. "
families: it's YOUR fault for taking the money we were giving you.
investors: it's YOUR fault for capitalizing us in the first place.
Buyer beware.
Who in heavens name is responsible for the decisions that you or I make with our money?
There are fools ready to take it. Including those who would save us, the Government.
This is really funny. A few years ago an employer set up an RRSP account for me and contributed monthly to it. (401K in the US). Every month my hard earned money went in. And every month the balance decreased.
It was quite obvious that my money was going into someones pocket. At the time the market was not moving, but someone was taking fees. I can't afford to pay someone else to manage my money. So I took it out.
Same with housing. We looked at housing. Most of the housing stock in our area should have been burnt two decades ago. Now the were asking 3X what they were asking two decades ago. For what? High taxes, and the privilege of major renovations just to get house insurance. I'm not that stupid. Other people were and are sitting wondering how to pay for this junk. Sure people made money. I can't afford to lose a bet that big. Lots of people are finding out that they can't either.
This is in the better regulated Canada.
The next scam is energy. There is money to be made doing house upgrades for energy purposes here. Small subsidies, and you can even get an expert from the government to tell you what to do. A '4 day extensive course' qualifies you as an expert. On their word you will part with 5-6 digit sums. Buyer beware.
Fools and their money are easily parted.
Derek
As long as we're assigning villains, what about the scumbag attorneys like Barack Obama who shook down the banks to make bogus loans to people who couldn't afford them in the name of 'spreading the wealth around'?
My key takeaway from this crisis: I HAVE SEEN THE ENEMY AND THEY ARE US.
There are lots (millions?) of villains in this mess...playing the little guy card or plausible deniability or ignorance is no defense as far as I'm concerned.
People, generally speaking, are a rotten, self-absorbed, and arrogant species. I would argue that our susceptibility to acts of hubris is the only thing that separates us from the rest of the animal kingdom. The only thing. And this crisis, if there is anything to be learned from it, is that people, collectively, need to be much more humble.
But I ain't holding my breathe.
"There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable"
People who caused the crisis weren't motivated by ideology. Those slavishly devoted to ideology are those who claim virtually any event proves their ideology correct.
The single person who is most responsible for this crisis was, indeed motivated by ideology, Congressman Barney Frank, (left wing lunatic- Massachusetts). Fannie and Freddie made the subprime market marketable by giving the government's seal of approval and guarantee of risk. Everyone else just followed their own rational self interest and followed the leader off the cliff.
Fannie and Freddie made the subprime market marketable by giving the government's seal of approval and guarantee of risk.
Again that's wrong, by 2004 Fannie, Freddie and the FHA were nearly out of the mortgage market because the loans had gotten so crazy they were no longer allowed to purchase them. The loans made from 2002-2004 were bad, but if the bubble had stopped in 2004 we'd likely not have such a problem on our hands. Banks continued to make insane loans all the way through 2007 and even into early 2008.
In fact, the point they had gotten out of the mortgage market was thought of at the time that Fannie and Freddie were no longer needed in the market because the free market found a solution.
Chain of Blame claims that FM/FM didn't buy subprime paper. Do you have some information that this claim is false?
What ever happened to the plans for a debate between Ritholz and that Clusterstock guy?
These aren't innocent civilians having an innocent accident is something outside their area of expertise.
These were highly compensated professionals operating in their professional capacity.
This brings a higher level of accountability than, "Stuff happens."
These were highly compensated professionals operating in their professional capacity.
I once saw a jury find that a doctor had not committed malpractice when, in cleaning out a wound caused by a man falling off a dock and impaling his leg on a subsurface stick of some kind, he failed to remove pine needles and leaf fragments which slid between muscle and bone. The plaintiff had permanent loss of function due to gangrene which developed as a result.
The doctor's defense was, essentially, that no reasonable ER doctor would have whipped out a scalpel and cut the fascia to separate the muscle from the bone on the off chance that something small and flat my have been forced under there, when nothing was otherwise visible.
So it was a wrong choice, made by a highly compensated professional operating in his professional capacity, but the jury thought he was right: stuff does happen
That's an interesting story, but the actions and dilemmas faced by a singular ER doctor in his interaction with an individual patient are quite different than what has been going on in terms of overall management and leadership within the financial industry.
Take for example Michael Lewis' recent article on AIG FP, which suggests there were plenty of personnel who had questions about what was going on. But they were afraid to come forward either because they found Joe Cassano bullying, or they were just making too much money to risk complaining. People who did come forward with concerns, including a forensic accountant, were first intimidated into doing their bidding, and when that failed, they were faced with dismissal.
Yes, stuff happens. But when you blow up the credit markets, and there were a significant number of people warning you about it beforehand, and the taxpayer has to pay for it, it's not "stuff" happening.
1. I think that banker's involvement in the crisis is more direct than the ER physician's involvement in the infection.
2. Nevertheless, the ER doctor was held accountable for his action, and had to go through a literal trial, likely at great personal expense, in order to demonstrate his actions were appropriate. Would bankers be willing to submit themselves to such a trial?
I also suspect that the malpractice suit did not constitute the sum total of the consequences the physician face for this case.
That's an interesting story, but the actions and dilemmas faced by a singular ER doctor in his interaction with an individual patient are quite different than what has been going on in terms of overall management and leadership within the financial industry.
Well, I'm not trying to defend the banks. I'm merely pointing out that smart, experienced professionals can make mistakes for which they cannot properly be assigned fault. Being wrong is not equivalent to being culpable.
Love all your articles and this one, and agree with your views. They are not villians, but they just exploited the loopholes that existed, due to incompetent government regulation and connivance. But I don't agree with your statement: "moronic asian savers who lent them money". From when did saving money became moronic? Isn't wasteful and mindless spending has been the plague that afflicted this nation? Maybe you called asians "morons", for lending money to the profligate spenders in US?
Murali,
In fairness to Megan, she clearly meant the latter - that it was moronic to continue to buy so many US treasuries.
And the issue of whether someone is a villain is a red herring. The concern is accountability.
There is no indictment for "villainy." "Villainy" is a distraction from the real issue, which is fraud.
Even if Megan meant that act of asians buying the US treasuries to fund the previous US profligacy or to fund their current stimulus package to be moronic, it is still far from the truth.
Asians (including Indians) were brought upon traditionally to save money for the rainy day, and not to indulge oneself in luxury goods with borrowed cash, unless the person can pay down the whole required amount in full down payment. Asians tend to save their hard earned money in government and private banks. Again it is those banks which make the decision to buy US treasuries or debt in exchange for people's money/savings. So to call all the regular asian workers as morons for saving money is in my opinion, a little out of line.
If accountability is the issue that is being discussed, then it is the government which needs to be vilified first. They started the program for easy home-ownership (especially sub-prime ones) by establishing Fannie & Freddie. They also got in the way by pressurizing the banks to make those sub-prime hard-to-justify loans. All this was done to satisfy the interests of the minorities, which in turn was expected to win their loyalties and hence would turn into votes in election. It is also the government and Fed which kept the interest rates low for way too much time for this bubble to arise. Also it is the same government and congress which decided to do with no regulation of the financial industry. So it is the government which created all these necessary and sufficient conditions for the crisis.
I wonder why no one hardly places any blame on the government (both dems & reps) when almost all of the causes for this crisis points directly to them.
Doubtless, the bankers did then exploited the existing situation with their esoteric financial models and by making those stupid loans. But any person who can be easily tempted by money would have done the same in that situation. It is basic human nature. It was up to the government to prevent it from occurring by regulation and laws, but they failed to do it.
Murali,
I see your point about Megan's comment. I will concede that Megan's words weren't well-chosen.
But as an American, I will say that American savings rates were not historically so low. And I've known many an Italian immigrant who could put a Japanese auntie to shame in the penny-pinching department.
On your 7:42 post, yes, I blame the government, and I believe you are right in holding them accountable, too. But you're mistaken in placing blame first on FNMA and Freddie Mac - the larger problem was Clinton's signing of Gramm-Leach-Bliley and the Commodities Futures Modernization Act. Both of which can be considered part of "regulatory capture", in which Goldman Sachs has been heavily involved, but which Megan apparently doesn't deem significant. (But I do agree with you on the Fed's mismanagement of interest rates.)
Many other more knowledgeable and experienced financial writers DO consider regulatory capture a highly significant factor in this crisis, and have written about it. If you are interested, I recommend Kevin Phillipps' "Bad Money" and Gillian Tett's "Fool's Gold." You may find both books useful in understanding these "inscrutable" Americans and their financial adventures.
Nell Minow and Nouriel Roubini had an interesting debate on what you're talking about - whether to blame Wall Street or Washington for the economic crisis. They were joined by Jim Chanos and Niall Ferguson. I recommend it - it's available through a program called "Intelligence Squared."
As far as I'm concerned, I blame both Wall Street and DC.
Let's bear in mind that NOT EVERY FINANCIAL INSTITUTION in this country behaved so badly in the last 20 years. And there have, historically, been U.S. bankers who participated in doing important things, like helping to rebuild cities. So to treat them as not possessing a shred of morality is to ignore the larger historical fact.
Thanks for the books/article recommendations plutarchos, will check them out.
It is my opinion that this situation would have arose if not for the government's connivance, and stupid deregulatory policies which doesn't make any logical sense.
So as tax payers and voters, we should be holding the government responsible for this mismanagement, de-regulation, and for establishing institutions to pedal sub-prime loans etc. It is the responsibility of our democratically elected government to be accountable for the people's interests. That's why we have democracy, choose to pay taxes , and care to vote in elections.
Bankers are people too and they can't be held accountable for their acts above a certain level. They can be easily tempted and swayed by the prospect of easy money. And when government establishes all these necessary and sufficient conditions for the crisis, bankers simply exploited the loopholes. So to hold bankers responsible for this mess is, in my opinion, laying the blame on the wrong people.
We can choose vilify the top-level management of banks for having lobbied to have the de-regulation bills to be passed, but without the government's and congress's connivance and plain stupidity, this situation would not have happened.
And the government knowing well that it was their mistake to have allowed this crisis to happen was now smart enough to make the wall st bankers as the easy scapegoats, and by brining the public attention to the banker's bonuses and the issues with AIG etc. Now people are easily swayed and are made to think it is the wall st bankers who are the real villains.
Murali,
That cuts both ways.
During the boom times, the message from Wall St. wasn't something akin to, "someone needs to put the brakes on this thing." It was more like, "we are the reaon for the boom time, and richly deserve our high compensaton. Get off our backs, and let us make everyone rich!"
If the job of a banker is to execute within a tightly defined framework of regulations, then they are bureaucrats, not creative professionals, and should be compensated accordingly.
You can't eat your high compensation during the boom times, and have no accountability in the bad times.
That's the best Megan can do? That everybody else was doing it so it's unfair to single out the worst offender?
Clearly she must be preoccupied with matrimonial concerns.