Saturday, October 17, 2009

Banker Noir

First it's Dean Baker (see his good links), and now the mainstream press is going noir on this banker business.  "Bailout Helps Fuel a New Era of Wall Street Wealth" says on NYT headline, which makes for a decent summary of where we are right now.
  • The banks' new big money comes from Washington - the taxpayers, in the form of direct cash, loans, loan guarantees, and zero-percent interest that they can loan back at 5% or so. 
  • They are making money now doing exactly what they were doing before the crash 14 months ago - "making fortunes . . .  trading stocks and bonds, rather than in the ho-hum business of lending people money."  That is putting speed-trading, currency speculation, commodities arbitrage, and a bunch of much more clever stuff euphemistically.
  • No new regulation has taken place: "So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza." or: “'They are able to charge more for all kinds of services because companies need banks and investment banks more now, and there are fewer strong ones to help them,'” said Douglas J. Elliott of the Brookings Institution."
  • Surviving banks are making monster profits on monster spreads: "Banks that have waded back into the markets have been able to exploit large gaps in the prices of various investments, a feature of the postcrisis financial markets. The so-called bid-ask spreads — the difference between the price at which banks are willing to buy things like bonds, and the price at which they are willing to sell — are roughly twice what they were two years ago.
The noir reading is this: 9/08 was banker 9/11.  They didn't do it on purpose, but they used it to increase financial power over the economy.  US economic leaders, having stopped being able to generate 1950s-1960s profit margins by making better products and beating the global competition head-to-head, squeezed wages, benefits, and social investments of every kind. These elites made up for the damage done to the general incomes of their own customers with a combo of lootings and bubbles - S&L pillaging in the 1980s, dot-com bubble of the 1990s, real estate bubble of the 2000s, that maintained consumption and middle-class living through easy borrowing against inflated assets.  Now there are no more bubbles. The "green economy" of Van Jones and others would help the environment but also raise wages by rebuilding industries that pay decent wages, and that cost finance money!  If there's no bubble for Main Street, cut Main Street loose. That's what we have now: the barnacled ship has been cut loose from the government tugboat, and is sinking steadily, while the finance sector is being towed ahead even faster than before.

The new cover story is the V-shaped recovery.

Finance is supposedly helping the gigantic resilient rebound.  But in fact it is not putting money into the economy with lending and is taking money out with enormous trading profits for which some losing party pays.   All the faltering Vs are aspiring to ideal V-ness. The ones who will succeed - like China - are the ones whose banks are most completely under political control.
 The government money not being spent on banks is being spent on our two unwinnable wars, which are also financed by banks.  Depressing dumbness floods in from everywhere, as in the McChrystal folly in Afghanistan, which assumes the power of a rich kid country that has in spite of its self-image failed repeatedly at military control, and will spend whatever we have left failing again.
That's noir. It signals the moment where the rotten foundations of the most powerful forms of success become visible to pretty much everybody.

Addendum: noir also assumes the permanent ignorance of the little people. Fr. Frank hits this note on Goldman Sachs in his Sunday sermon
there is one other significant way that our 21st-century vampire squid differs from Rockefeller’s 20th-century octopus. Americans knew what oil was, and they understood how Standard Oil’s manipulations directly affected their pocketbooks. Even now many Americans don’t know what Goldman’s products are or how it makes its money. The less we know, the easier it is for reckless gambling to return to capitalism’s casino, and for Washington to look the other way as a new financial bubble inflates.
Another one of my Capitalist Pals has a good piece on the new order's new big winners ("three sets of players look positioned to do the same in the US today, mostly based on the amazing set of “carry trades” available if you have access to large amounts of cheap short-term funding").  The piece starts by describing US equities as an "emerging market":
The US increasingly displays characteristics that we have seen many times in middle-income “emerging markets” – new dimensions of vast inequality, forms of financial instability that benefit the best connected, and consistently easy credit for the privileged. But this raises the question: who exactly is going to dominate our economic and political landscape moving forward?
Noir as a genre flourished historically as the U.S. transited from a banana republic to a more routinized industrial one, while keeping many of the banana features.  Now Simon Johnson concludes, "Many states have been taken over by bankers; there is no shame in fighting and losing against what Jefferson called the “monied aristocracy. But few governments, even the weakest, have handed over the keys as quietly as we did. "

The noir conditions flourish again.

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