Since being laid off, writer Moe Tkacik has had all the time in the world to wallow in coverage of the economic crisis. And there are a few things that are pissing her off. This is her story.
As some of you may know, I am unemployed, which leaves me with a lot of downtime to sit on my couch watching CNBC, my favorite cable channel. Watching CNBC is addictive because, much like the market, it moves too fast to really understand everything or really anything that is going on. Nine people are barking at one another at any given time, and the screen is full of all kinds of crazy distracting graphics. Even the anchors and producers who make it seem distracted, which is fine, really, because after all, the people who are watching CNBC are the most distracted of anyone. Which brings it back to me: unemployed. But as someone who has the guilty luxury of being able to actually focus on CNBC all day long, I feel uniquely qualified to tell you that despite the fact that most of the people on CNBC are obviously very smart, they have — perhaps, distractedly — said some really stupid things about the economy lately. Five things that have made me really angry, after the jump.
1. “The cars don’t deserve a bailout because they have been fucked up for so many years, whereas the banks failed in reaction to a market event.”
Heard that gem, minus the F-word, from CNBC’s Sue Herera the other day. Everyone on Power Lunch nodded in agreement. This is somehow the conventional wisdom on Wall Street: that the Big Three are these hopelessly mismanaged, bloated institutions who’ve bribed the government and “electorate” into saving them even though everyone knows they will never be capable of producing anything anyone will want to buy ever again, while the collapse of the financial system was more like an act of nature. (This view is expressed perhaps nowhere more despicably than this post on employs too many people with the right to vote for the government of the country in which it resides.)
Anyway, aside from being immoral, the logic is colossally backward. People will need cars for the foreseeable future. People will never again need, nor did they ever need, synthetic collateralized debt obligations. If there were any unanticipated “market event” you could forgive the companies for failing to anticipate, it was the speculation-fueled quadrupling of gas prices over the course of three years that, along with the credit freeze, has decimated the American auto market. I’m not excusing the Big Three; they’ve made some crap decisions over the years. But fundamentally the failure is the same across both sectors — the failure to adequately look out for their own long-term viability. And quite frankly, in addressing that failure, the auto companies have done a far better job than their counterparts in finance — namely because engineering is a far less profitable game than financial engineering — with the notable exception of Chrysler, which is owned by a hedge fund that spent entirely too much time last year divesting and buying back and selling off and buying again various chunks of its auto business to actually figure out how to manage anything.
2. “How can we expect them to sell cars if they can’t even sell their plan to Congress?”
CNBC agreed with Congress that it was completely outrageous for the Big Three CEOs to fly to their hearing on corporate jets. (Because CNBC anchors are super-fastidious about their carbon footprints, apparently.) And yes, this was stupid, but remember, no one knows how to sell stuff to Congress. Hank Paulson’s entire plan to fix the financial system was three pages long. The thing is, they have plans in place to fix their operations. Recent history is riddled with rags-to-riches stories of automakers transforming their fortunes with the right blend of management and discipline. Ford’s Alan Mulally, in a little-reported twist, even told Congress that Ford probably wouldn’t need any bailout funds if the recession didn’t get significantly worse. Unfortunately, the recession will probably get significantly worse, because most chief executives are not, like Mulally, proponents of the Toyota Way of Increasing Efficiency, whereby a firm ensures long-term viability by doing everything within its power to eliminate waste. In America, we like to perpetuate waste, because without waste it would be a lot harder to go around imposing our “efficiency” standards on things. And it’s always been pretty easy to perpetuate waste in this country with the awesome power of marketing and sales.
Which brings me to a commercial in heavy rotation on CNBC these days that advertises an outfit called “Interactive Brokers,” on which the announcer says the following:
3. “[We don’t trade] toxic securities like credit derivatives or credit default swaps.”
Credit default swaps, ask anyone who knew what they were two years ago, are actually great things to have. Unfortunately, very few people did know what they were two years ago, nor do most people know what they are now. Because thanks to the strenuous efforts of former Fed chief Alan Greenspan, this $66 trillion industry was never regulated or monitored or subject to any sort of transparency requirements by the federal government. Trading is conducted by e-mail and there are no price quotes, as today’s Wall Street Journal reenactment of last month’s credit-default-swap-addled attack on Morgan Stanley explains.
So here’s what you were missing out on — and apologies if you got this the first 500 times — credit default swaps are insurance policies you can buy on a bond to protect your principal against the possibility that the borrower defaults. Now, imagine you could buy, say, 25 credit default swaps on the same 300 bucks that alcoholic bass guitarist ex-boyfriend borrowed before he moved back to his mom’s basement, or the child-support payments of some dirtbag you saw on Judge Judy. You can’t do that, obviously, but you could buy 25 credit default swaps on the same lousy pool of adjustable-rate mortgages loaned to eightysomething Alzheimer’s patients living on $13,000 a year like Brooklyn’s Simeon Ferguson and the like — and you wouldn’t even have to buy the mortgage bonds in the first place! Only a handful of guys probably knew it was possible to buy these things circa 2005 or 2006, and many of them worked for 78th Richest American John Paulson.
The thing that is so exasperating about the misconception that credit default swaps are dangerous, confusing things no skeptical consumer would buy without reading the fine print — just like adjustable-rate mortgages — is that it distorts and plays down the real problem, that people who didn’t understand them were allowed to sell them. The CDS unit of AIG booked 80 percent profit margins selling swaps it is now clear it totally did not grasp; now taxpayers are on the hook to the tune of $200 million or so to the likes of John Paulson and other CDS holders, like Goldman Sachs and Morgan Stanley, on financial instruments Greenspan specifically prevented taxpayers from ever knowing about. Earlier this year Greenspan found a new gig working for John Paulson, who treated him to a $500 bottle of wine just the other night.
Which leads me to:
4. “Our lawmakers left and right are either fools, wolves, or pigs. None of them are ultimately serving the best interests of this country; we must treat them like the public employees they all are. We demand so much more accountability and transparency from our production assistants.”
That came out of the mouth of Dylan Ratigan the other night, following an even more incoherent rant blaming the government and “bad legislation” for the entire economic crisis. Here is the truth, Dylan: There is this thing in America that we call elections. The vast majority of our lawmakers have to go through them every two years. Every single thing they do of significance is on the public record. Myriad insignificant things, too. But for years, Wall Street has exhibited only contempt for anyone on the government payroll who did not work for the Fed. This attitude was abetted and enabled by a Republican leadership that did not trust its own party members on the Financial Services Committee. They saw this coming — when Long Term Capital Management almost exploded the markets as a direct result of the “counterparty risk” that bound us to bail out AIG, when Enron touched off a wave of 30 or so separate multi-billion-dollar accounting restatements that killed Arthur Andersen and made laughingstocks of the entire accounting industry — but the fact-resistant, and fundamentally provincial, disdain of jerkoffs like George W. Bush and Tom DeLay — and Ratigan — kept them from doing anything, in a perverse decade-long pattern of willful neglect that systematically and repeatedly undermined every federal agency charged with regulating the financial system. (The latest and most egregious example of this: the Office of Thrift Supervision, the regulator to whom Countrywide Financial opportunistically “switched” from the merely woefully neglectful SEC in 2007.)
Which brings up what may be my biggest peeve of all:
Market cheerleaders were outraged to find out Friday that Barack Obama was taking diversity into account in naming his Council of Economic Advisers. Today he appointed a female Berkeley professor to chair the council in lieu of his buddy Austan Goolsbee, and he may even round out the list with a Latina labor economist, also a (OMG, HOT) lady! Thankfully, the market has been too distracted rejoicing over the appointment of New York Fed president and certified white guy Tim Geithner as Treasury secretary — and yeah, another nine-figure federal pledge for Citigroup — to notice.
Nothing against Geithner, but the market loves him in part because, although a seasoned bureaucrat, he is the New York Fed president, and the banks basically get to pick the New York Fed president — and Geither’s successor. They know him; they’ve traded with him, he’s not a Ph.D., and they trust their own. But why? Overexposure to the “rich white dudes, character flaws of” market is what got us into this mess. If rich white dudes had spent much time talking to anyone other than other rich white dudes, it would not have happened — Hank Paulson admitted as much the other day when he told the Washington Post that moving three hours south had completely transformed his opinions about regulation. Imagine if Paulson had ever gotten the opportunity to meet a Mexican seamstress about to sign onto a subprime mortgage in Oakland! He might have been able to explain that his rich white friends were stocking up on trillions of dollars of credit default swaps betting that mortgage was going to make her life total hell in a few years. Sadly, they are an insular bunch, the white guys. It’s not an accident that the few “heroes” of this crisis — Brooksley Born, Sheila Bair, Meredith Whitney — are heroines. Alas, they were always just a bit outnumbered. Thankfully, the crew affected by this crisis is a much more diverse lot than the crew that milked it for billions. The economy affects all of us! And the government gets paid to understand this. If only CNBC could understand that they do too.