Did Psychopaths Take Over Wall Street Asylum?: William D. Cohan. It took a relatively obscure former British academic to propagate a theory of the financial crisis that would confirm what many people suspected all along: The “corporate psychopaths” at the helm of our financial institutions are to blame. Clive R. Boddy, most recently a professor at the Nottingham Business School at Nottingham Trent University, says psychopaths are the 1 percent of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.” As a result, Boddy argues in a recent issue of the Journal of Business Ethics, such people are “extraordinarily cold, much more calculating and ruthless towards others than most people are and therefore a menace to the companies they work for and to society.”
How do people with such obvious personality flaws make it to the top of seemingly successful corporations? Stable Environment. The Incentive Bubble. Photograph: Joe Costa/NY Daily News Archive via Getty Images: Macy’s Thanksgiving Day parade, 1939 The past three decades have seen American capitalism quietly transformed by a single, powerful idea—that financial markets are a suitable tool for measuring performance and structuring compensation. Stock instruments for managers and high-powered incentive contracts for investors have dramatically altered the nature and level of incentives and relative rewards in our society, on both sides of the capital market.
In 1990 the equity-based share of total compensation for senior managers of U.S. corporations was 20%. By 2007 it had risen to 70%. This transformation would be welcome if it served to structure incentives and rewards appropriately—indeed, nothing is more important for a market economy than the structure of incentives for managers and investors.
It has become fashionable to bash capital markets and financial institutions. The Ideal. Wall Street Confesses to Bonus Culture’s Ills: William D. Cohan. Imagine if you could hear directly, albeit anonymously, from the normally secretive bankers and traders who manufactured and sold the trillions of dollars in toxic debt securities that pushed the world’s financial system to the brink of disaster in 2008. Would they defend themselves and their actions, or show a degree of remorse for what they caused and have not been held accountable for? Well, you can find the answer to that question in “Conversations With Wall Street,” a compact -- and largely overlooked -- book by Peter Ressler and Monika Mitchell published last year by FastPencil Premiere, in Campbell, California.
Ressler and Mitchell worked together at a Wall Street executive search firm that specialized in finding senior people for fixed-income trading departments. They placed in their positions of leadership many of the bankers and traders who ended up causing the financial crisis that we are still trying to recover from. Stripped of Glamour It ain’t pretty. Sleepless Nights. The Scam Wall Street Learned From the Mafia | Politics News. Should Some Bankers Be Prosecuted? by Jeff Madrick and Frank Partnoy. Wall Street and the Financial Crisis: Anatomy of a Financial Collapse by the Majority and Minority Staff, Permanent Subcommittee on Investigations, US Senate 639 pp., available at hsgac.senate.gov Money and Power: How Goldman Sachs Came to Rule the World by William D.
Cohan Doubleday, 658 pp., $30.50 Report of the Business Standards Committee Goldman Sachs 63 pp., available at www.GoldmanSachs.com/BusinessStandards Private financial firms overwhelmingly created the conditions that led to catastrophe. The Case for Treating Big Finance Like Big Pharma - James Warren - Business. A pair of University of Chicago law professors say the federal government needs to regulate new financial products the same way it tests new drugs for safety Roadside Attractions Jeremy Irons captured a new Wall Street's moral ambiguity in the 2011 film "Margin Call" when his fictional chief executive lectured his investment bank staff on the three ways to make money. "Be smarter. Be first. Or cheat. That moment is central to a distinctly non-fictional proposal by two University of Chicago law professors which will cause dyspepsia among their famous free market colleagues at the university and the well-heeled leaders of Chicago's booming and path-setting exchanges, where many of the most important financial products of the past 20 years have been born, including derivatives.
They want to dramatically re-regulate new financial products, including sophisticated derivatives, that they assert "facilitate gambling and regulatory arbitrage, both of which are socially wasteful activities. " "Too Big to Jail" by Simon Johnson. Exit from comment view mode. Click to hide this space WASHINGTON, DC – Among the fundamental principles of any functioning justice system is the following: Don’t lie to a judge or falsify documents submitted to a court, or you will go to jail.
Breaking an oath to tell the truth is perjury, and lying in official documents is both perjury and fraud. These are serious criminal offenses, but apparently not if you are at the heart of America’s financial system. As Dennis Kelleher of Better Markets has argued, the recent so-called “robo-signing” settlement – in which five large banks “settled” their legal liability for carrying out fraudulent foreclosures on mortgages – is a complete sell-out to the financial industry. First, there was no serious criminal prosecution – meaning that no one will be charged with a felony, and no one will go to jail.
Even the terminology used to frame the discussion is wrong. Top bankers want to make a lot of money. How Political Clout Made Banks Too Big to Fail. The U.S. has historically kept the financial sector in check through a combination of sound principles and serendipitous decisions. But as the financial system gained strength in recent years, it also gained political influence. In the last decade, it has become too concentrated and too powerful, which has damaged not only the economy but the financial sector itself. How did it happen? In 1933, the Glass-Steagall Act erected a wall between two ways that banks could help customers borrow money. The idea was to keep commercial banks from exploiting their depositors, who might get saddled with the bonds of firms that could not repay the money they owed.
One beneficial side effect of the Glass-Steagall Act was to fragment the banking sector and reduce the financial industry’s political power. Bank Concentration Starting in the 1970s, these limits were progressively removed. Most important was that the concentration of deposits and lending increased significantly. Strengthened Lobbying. The Big Lie. Wall Street’s Euthanasia of Industry. Michael interviewed on Guns N Butter with Bonnie FaulknerListen here “When I was in Norway one of the Norwegian politicians sat next to me at a dinner and said, “You know, there’s one good thing that President Obama has done that we never anticipated in Europe. He’s shown the Europeans that we can never depend upon America again. There’s no president, no matter how good he sounds, no matter what he promises, we’re never again going to believe the patter talk of an American President.
Mr. Obama has cured us. Topics: The jobless recovery; the debt ceiling and default charade; China; Greece: banks, not countries, receive the bailouts; financial warfare; IMF and EU; European Central Bank; US credit default swaps; US agricultural exports create food dependency; currency devaluation devalues the price of labor; class war of banks against the rest of society. I’m Bonnie Faulkner. That’s why the stock market is down 160 points today. Somebody has to lose when loans go bad. Rep. Ms. Mr. Mr. Mr. A Giant Among Giants - By Ken Silverstein. When Glencore, the world's biggest commodities brokerage firm, went public in May 2011, the initial public offering (IPO) on the London and Hong Kong stock exchanges made headlines for weeks in the Financial Times and the trade-industry press, which devoted endless columns to the company's astonishing valuation of nearly $60 billion -- higher than Boeing or Ford Motor Co.
The massive new wealth turned nearly 500 employees into overnight multimillionaires and made billionaires of at least five senior executives, including CEO Ivan Glasenberg. "We are not going to change the way we operate," vowed Glasenberg, who had started as a lowly coal trader for the Swiss firm nearly three decades earlier and, with the IPO, immediately became one of Europe's richest men.
"Being public will have absolutely no effect on the business. " And what a business it is. But to experts, there's simply no other way for a company like Glencore to thrive. Rich has admitted that the old Glencore paid bribes. Heist of the century: Wall Street's role in the financial crisis | Business. Bernard L Madoff ran the biggest Ponzi scheme in history, operating it for 30 years and causing cash losses of $19.5bn. Shortly after the scheme collapsed and Madoff confessed in 2008, evidence began to surface that for years, major banks had suspected he was a fraud.
None of them reported their suspicions to the authorities, and several banks decided to make money from him without, of course, risking any of their own funds. Theories about his fraud varied. Some thought he might have access to insider information. UBS headquarters forbade investing any bank or client money in Madoff accounts, but created or worked with several Madoff feeder funds. JPMorgan Chase had more evidence, because it served as Madoff's primary banker for more than 20 years. The Securities and Exchanges Commission has been deservedly criticised for not following up on years of complaints about Madoff, many of which came from a Boston investigator, Harry Markopolos, whom they treated as a crank.
An Excerpt From “Killing the Competition: How the New Monopolies Are Destroying Open Markets”—By Barry C. Lynn. Barry C. Lynn is the author of Cornered: The New Monopoly Capitalism and the Economics of Destruction. He directs the Markets, Enterprise, and Resiliency Initiative at the New America Foundation. His Harper’s Magazine article “Breaking the Chain: The antitrust case against Wal-Mart,” from the July 2006 issue, is available for free here. Fear, in any real market, is a natural emotion. There is the fear of not making a sale, not landing a job, not winning a client. Such fear is healthy, even constructive. But these days, we see a different kind of fear in the eyes of America’s entrepreneurs and professionals.
The equation is simple. Over the past four years of financial collapse, many of us have come to view markets as a fantastical scam: a giant mechanism geared to transfer our hard-earned dollars into the hands of a few select bankers. But as every previous generation of Americans understood, a truly open market is one of our fundamental democratic institutions. John D. Finance & Development, September 2011 - Equality and Efficiency. Finance & Development, September 2011, Vol. 48, No. 3 Andrew G. Berg and Jonathan D. Ostry PDF version Is there a trade-off between the two or do they go hand in hand? IN his influential 1975 book Equality and Efficiency: The Big Tradeoff, Arthur Okun argued that pursuing equality can reduce efficiency (the total output produced with given resources). Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? In a word, no. In recent work (Berg, Ostry, and Zettelmeyer, 2011; and Berg and Ostry, 2011), we discovered that when growth is looked at over the long term, the trade-off between efficiency and equality may not exist.
Inequality matters for growth and other macroeconomic outcomes, in all corners of the globe. How do economies grow? The experiences in developing and emerging economies, however, are far more varied (see Chart 2). Income distribution and growth sustainability Hazard to sustained growth Cameroon is typical. Too Big to Fail Not Fixed, Despite Dodd-Frank: Simon Johnson. Here we go again. Major shocks potentially threaten the solvency of some of the world’s largest financial institutions. Concerns grow over the ability of European leaders to shore up their banks, which are reeling from a sovereign-debt crisis. In the U.S., the shares of some large banks are trading at less than book value, while creditor confidence crumbles.
Private conversations among economists, regulators and fund managers turn naturally to so-called resolution powers -- the expanded ability to take over and wind down private financial companies granted to federal regulators by the Dodd-Frank financial reform law. The proponents of these powers, including Tim Geithner and Henry Paulson, the current and former U.S. Treasury secretaries, argue that the absence of such authority in the fall of 2008 contributed to the financial panic. Imposing Losses First, the resolution authority under Dodd-Frank is purely domestic -- there is no cross-border dimension. Preemptive Use No Early Action. Jon Huntsman: Too Big To Fail Is Too Big. By Simon Johnson The idea that big banks damage the broader economy has considerable resonance on the intellectual right. Tom Hoenig, recently retired president of the Kansas City Fed, has been our clearest official voice on this topic. And Gene Fama, father of the efficient markets view of finance, said on CNBC last year, that having banks that are too big to fail is “perverting activities and incentives” in financial markets – giving big financial firms, “a license to increase risk; where the taxpayers will bear the downside and firms will bear the upside.”
The mainstream political right, however, has been reluctant to take on the issue. “More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. This message could work politically, for five reasons. Huntsman has joined the dots. That Bank Bailout Was Way Bigger Than Anyone Thought - Business. Remember the $700 billion Troubled Asset Relief Program with which the federal government came to the rescue of faltering banks in 2008? Well, according to a Bloomberg report, that was just a fraction of the financial help the Federal Reserve Bank wound up doling out to troubled lenders.
The real total was reportedly closer to $8 trillion, after you add up benefits outside TARP, including emergency loans given at below-market rates: The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” Bloomberg came up with that number after reviewing "29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. " The $7 trillion secret loan program: The government and big banks should be punished for deceiving the public about their hush-hush bailout scheme.
What is the contribution of the financial sector? Too Big to Stop: Why Big Banks Keep Getting Away With Breaking the Law - James Kwak - Business. Where Is The Volcker Rule? The Greater Recession: America Suffers from a Crisis of Productivity - Derek Thompson - Business. Why the Rich Are Getting Richer. The road to political dictatorship. Berkeley Study: Rich More Likely to Behave Unethically. Central Bankers in the Line of Fire - Luigi Zingales. "Better than Basel" by Stefano Micossi. The Credit Crisis Five Years On: Unpacking the Crisis. "The Corporate-Tax Conundrum" by Laura Tyson. Does the Latest Failure of Bank Regulation Mean Banks Can't Be Regulated? - National.
Bankers constantly lying, defrauding; most still not in jail. Libor Rate Faces Review Amid Barclays Scandal. The LIBOR affair: Banksters. Michael Tomasky: Why Jamie Dimon Should Resign from J.P. Morgan. Wall Street Does Not Care About JPMorgan's Loss. Jamie Dimon’s $2 Billion Mistake: The JP Morgan Chase fiasco, and how to fix Wall Street. Inside J.P. Morgan's Blunder. $3 Billion and Counting: JP Morgan's Loss Grows by 50% in 5 Days - Derek Thompson - Business.
Is It Time to Downgrade the Rating Agencies? Standard & Poor’s and Other Ratings Agencies Must End Their Power Trip. Sovereign ratings when default can come explicitly or via inflation. Lets rate the credit raters. Culture in Economics and the Culture of Economics: Raquel Fernandez in Conversation with The Straddler. The People vs. Private Equity.
More Unequal than Others - Pranab Bardhan. Michael Hudson: Debt and Democracy – Has the Link Been Broken? How Paulson Gave Hedge Funds Advance Word. Dave Lauer: It Ain't Rocket Surgery: The Skewed Incentives and Dangerous Consequences of High-Frequency Trading. Ray Dalio: Man and machine. Free the Banks! The Case for Massive Deregulation of the Financial System - Megan McArdle - Business. Democratize Wall Street, for Social Good. In Defense of Oil Speculators. Special Report: The algorithmic arms race. Out of Control: The Destructive Power of the Financial Markets - SPIEGEL ONLINE - News - International. Where Is Our Oil Price Collapse? John Lanchester · The Non-Scenic Route to the Place We’re Going Anyway: The Belgian Solution · LRB 8 September 2011.
Where is Wal-Mart when we need it? What is Debt? – An Interview with Economic Anthropologist David Graeber. The art of business and the science of economics. Speech with Slideshow--Yellen, Aggregate Demand and the Global Economic Recovery--November 29, 2011. Finance Now Exists For Its Own Exclusive Benefit. Nanosecond Trading Could Make Markets Go Haywire | Wired Science. Human Nature and a Volatile Stock Market. Andrew Haldane · The Doom Loop: Equity in Banking · LRB 23 February 2012. How Banks Are Using Your Money to Create the Next Crash. Michael Hudson: Banks Weren’t Meant to Be Like This.
Is neuroscience the new ‘Freakonomics’? - Ideas@Innovations. Hudson: The Neo-Rentier Economy « Multiplier Effect. Reckless: The Inside Story of How the Banks Beat Washington (Again) - Jesse Eisinger/ProPublica - Business. Tim Geithner: Financial Crisis Amnesia. MF Global: The Untold Story of the Biggest Wall Street Collapse Since Lehman. "Predators and Professors" by Simon Johnson. CEOs and the Candle Problem - A Mad Hemorrhage Blog | Nature Publishing Group.