How Main St. pays for Wall St. greed
Books about financial wickedness have been making their way into the happy home for years, but I haven’t been reading them because of the bad effect they have on my mental climate. A couple of weeks ago, however, I recklessly took up Matt Taibbi’s “Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America’’ (Spiegel & Grau, $26) and since then have been reading about financial foulness nonstop. Taibbi is the relentless, pugnacious writer for Rolling Stone magazine who, over a year ago, described
Here Goldman Sachs is once again a glittering presence — just as the company’s alumni are so conspicuously present in our government, installed by Republicans and Democrats alike. Indeed, the salient and most depressing point hammered home in “Griftopia’’ is that, notwithstanding the differing ideologies of the two main parties, there has been “a genuinely bipartisan effort to subsidize Wall Street.’’ Voters’ wishes are simply irrelevant; the complex mechanics of the economy are in the hands of people who mouth pieties about a free market while actively meddling with its intricate circuitry in the interests of the largest corporations.
The peerless example is Alan Greenspan, a man with a chapter all to himself, the title of which, alas, dares not speak its name in a family newspaper. This fact-based assessment of Greenspan’s celebrity-dazzled character, bad-faith philosophical outlook, and calamitous, delusional handling of the Federal Reserve is simply devastating. Even as he was bailing out hedge funds — and establishing on Wall Street a well-founded confidence in future bailouts — he was pushing for deregulation of the banks, an act of vandalism, finally accomplished under President Clinton, which brought us to today’s sorry pass.
The murky workings of a decade’s worth of bailouts and mergers and the snaffling up by the big financial players of any residual wealth left from America’s halcyon days of actual productivity are clearly sketched out in this book. Taibbi brings us from the 1998 bailout of Long Term Capital Management, through a decade of government-financial industry hanky-panky — deregulation, bespoke legislation, tax-code tweaking, and big hearted infusions of taxpayers’ money — to the near-Götterdämmerung of the autumn of 2008. In the end, that year’s cluster of extortionate, brass-knuckle deals concentrated banking into fewer and larger institutions than ever before, leaving the entire world economy in even greater peril.
One of the financial industry’s tried and true comic routines is the assertion that the huge “compensation (that word alone is good for a laugh) packages’’ that top executives demand and receive are not manifestations of greed. A fine example of this lofty stance can be found in Greg Farrell’s “Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America’’ (Crown Business, $27). This is a business history told in management terms and is interesting as a chronicle of what its title proclaims, though the element of greed is not conceded in its actual pages. The book is not about the morality or ethics of the business itself or the motives of the players, beyond acknowledging their ambition, the financial world’s version of valor. The reason, we learn, for the meltdown of 2008 was “Wall Street’s out-of-control bonus culture,’’ which, it may surprise you to know is not a moral issue but something more like a systemic flaw. Merrill Lynch CEO John Thain (who spent $1.2 million on refurnishing his office) was, according to his right-hand man, “not a greedy person. He was a dedicated family man who put his wife and kids before everything else. . . . Taken in narrow terms, Thain was right to ask for a certain level of compensation, but nobody in New York seemed to understand the bigger picture. . . . The whole reason everything almost came crashing down in 2008 was 25 years of nonstop focus on bonus checks, on compensation.’’
Replace the word “compensation’’ with “spoils’’ and language begins to reflect reality. At the base of the scheme that generated those gargantuan bonuses was an aggressive confidence game that began by impoverishing people through predatory mortgages. Those often fraudulent documents rose to Wall Street, shedding the taint of pillage — to say nothing of that of their signers’ inability to pay — through the alchemy of “securitization’’ and the spinning off of derivatives. That story and its history, which reaches back to the savings and loan crisis, is magnificently and heartbreakingly told by Michael Hudson in “The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America — and Spawned a Global Crisis’’ (Times, $26).
Hudson begins at the street level with appalling stories of the sharp operators and credulous marks who got the subprime mortgage ball rolling, bringing the narrative back to the late ’70s and Orange County, Calif. Here we find the origins of Ameriquest — eventually one of the country’s most rapacious lenders — entering the stage as a savings and loan — with all that entails. (Yes, there’s our old pal Greenspan lubricating the destructo machine.) Hudson describes the loosening of regulation through Democratic and Republican administrations, lack of enforcement of what regulations existed, and the ways and means by which money was channeled, operators at every level getting their cut, into bonuses for the big boys at such firms as Lehman Brothers.
But what I appreciated most about this tremendous, well-documented book is that it shows vividly that really filthy, face-to-face fraud and hard-sell bullying are the original ingredients, the required counters, in the increasingly abstract financial instruments that brought the economy down around our ears. It’s too bad that Wall Street couldn’t have stretched its pretense that the mortgage-based products it was selling had any real value to simply substituting fictional mortgages for real ones, thus sparing countless people one species of ruin and misery.
Katherine A. Powers lives in Cambridge. She can be reached by e-mail at firstname.lastname@example.org.