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Friday, January 09, 2009


start with the indictments

the ramifications of the points made in this interview with structured finance guru janet tavakoli are profound.

first, late-stage receivables securitizations were a criminal fraud perpetrated by the investment banks in conjunction with mortgage lenders. tavakoli asserts that was no confusion on wall street and investment banks were not at all duped by rating agencies -- indeed, they knowingly exploited the conflicted interests and moral weakness of those agencies to sell trillions of loss-making loans onto unsophisticated investors. they did so in an effort to pass off investment bank losses while collecting fees on the packaging and distribution of those losses.

second, if this is so, these securities are not mispriced at zero -- indeed, MBS and CDOs were likely designed to be worth as little as possible. these same securities, of course, packaged in asset-backed securities and collateralized debt obligations now underlie a large portion of the banking system of western civilization and further afield.

third, in bailing out these same investment banks, congress is essentially giving aid and comfort to the enemy of the people as a function of their capture by the financial lobby. this is critical to understand. as tavakoli (rightly, in my view) asserts, our financial system problems can be fixed relatively quickly. the problem is that the ones who would have to take the pain in order to do so are the same people who are not only shadow-writing the legislation but whose agents are leading the treasury and the fed.

perhaps much of this was already presumed, but it’s nevertheless rather shocking to hear someone of tavakoli’s tremendous knowledge base call for indictments -- indictments that could easily and probably should include treasury secretaries robert rubin and hank paulson for their roles in the investment banking swindle.

to sum up -- wall street isn't a basically good place afflicted with a few bad apples -- instead, wall street taken as a whole is an institutional bad apple that has intentionally wrecked the economy of the western world in search of incrementally greater fee profits.

so much for deregulation. nail not only their bankrupt leadership but these outfits themselves to a tree and light it on fire. i'll more than gladly accept permanently lower growth as the price paid for the modest semblance of moral rectitude, culpability and worthiness that might ensure that 'banker' is not merely a euphemism for 'parasite'.

UPDATE: more on janet tavakoli's book from david merkel.

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'not a black swan, but black barts'.

i find her interview very very interesting. i may actually pickup her book.

funny how we have heard so little about possible indictments on this (she is convinced they are in order). do you expect we will ever see the mass indictments she talks about gm? usually in the u.s. when anything goes wrong we are playing the blame game and going after the people responsible. not this time? later? hmmmmm.

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i think we're likely to get a pecora commission analogue at some point, ccd. prison is very unlikely for more than a scapegoat or two in my view -- these people are either the national power-elites or their representatives. the probability is similar to that of george w. bush and dick cheney being convicted of war crimes or crimes against the constitution -- both are guilty beyond any reasonable doubt, neither have any chance of actually being prosecuted. as cheney has brazenly implied time and again, crime simply isn't crime and sin just isn't sin IF you're powerful. their behavior is an extension of the machiavellian resuscitation of the ancient doctrine of civitas, and the christian moral rules that govern the rest of us do not apply (in their view) to their special status.

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