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Sunday, February 21, 2010

A Great Read

Don over at linked to this one by Matt Taibbi. Thanks Don.

Taibbi writes about the Bail Out in terms of a great con-game. I urge you to read the whole thing..., here's a primer.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

1 comment:

  1. I posted these comments at Don's Blog.

    Many Compliments Don…,

    first of all for the good link…, I almost didn’t click on it because I thought it would be a link to the magazine…, and it might take all afternoon to download here on The Dial-Up Ranch !!!!!!!

    This is one of Taibbi’s best pieces. Using the analogy/metaphor of the con game was truly masterful…, and thoroughly entertaining. I would point out a couple of things that I think he misses the point on.

    First of all…, he should have pointed out another great con-game movie…, “House of Games”.

    Second…, “A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result…”. That policy was in no way “inadvertent”. The government has been running this country on house building (and selling) for years. They are pulling out all stops to re-inflate that bubble. The banksters are just taking advantage of this policy failure.

    Third…, “Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy.” I am with Mish and Denninger on this one…, the banksters aren’t “lending” because no smart businessman with any sense is willing to invest in new business or expand an existing business in this environment. Yeah…, there are a lot of failing businesses who would be willing to take some cash now…, but in fairness…, we shouldn’t fault the banksters for refusing to lend to them.