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| Bank Consolidation; h/t Angry Black Lady |
As noted in last night’s post, Occupy Wall Street is an inchoate (I haven’t seen that word used as often in the popular press as I have these past two weeks) movement that drives the mainstream media kind of nuts with its inchoateness. What are they protesting? Why are they occupying? What are their demands? WHICH SIDE OF THE POLITICAL SPECTRUM CAN WE CLAIM THEY INHABIT???
Last night I wrote that:
This protest, the fact that people from all walks of life feel that the most effective method of expressing their outrage is a purposely undefined and undirected occupation of a public space, reflects the profound disillusionment in and failure of institutions in our society.
I think I dropped the thread of that argument a little bit prematurely, forgive me. Why would so many people feel such a disillusionment with the institutions of our society? My claim is that many of the institutions of which Americans at one time felt themselves to be a part of, both public institutions (as voters, taxpayers, and citizens) as well as private (as mortgage-holders, investors, or lessees) have systematically become more and more invested in conducting business for each others’ good, rather than for the common good. The collusion between government and private institutions, to the detriment of the voter/consumer, has been rampant in the past decade. From government officials leaving their posts to immediately go work as lobbyists, to government “regulators” proving their total capture to the interests they are supposedly regulating, and actively covering up negative information on behalf of their industry friends, there appears to be no separation between those who theoretically represent taxpayers and the industries they oversee. Everybody is bought off.
While I would never claim to speak for the OWS movement, I think that the inchoate anger expressed in this movement is at least in part fueled by such resentments. Who does government actually work for, anyways? I have focused a lot of attention on this blog to the housing market, but allow me to address a timely blog post by financial analyst Barry Ritholtz:
This is no accident. Indeed, it was by design that execs in the banking sector, and their outside accountants, hatched a scheme in 2008 to hide their balance sheets from public view. The bankers had been lobbying the Financial Accounting Standards Board to change the rules that governed “Fair Value Measurements” also known as FAS157 (September 2006).
You may recall during 2008 this was referred to as “Mark-to-market” accounting.
Banks loved m2m during a boom period. M2M made the more unusual balance sheet holdings — derivatives, the mortgage-backed securities (MBS), exotic liabilities, and other assets — look fantastic. The fair value measurements of these items — essentially, yesterday’s closing price — allowed the accounts to show enormous profits. Those were the underlying basis for huge bonuses, stock option grants and of course, company share prices.
The reality was quite a bit different. These were not equities or treasuries or corporate bonds — they were thinly traded items whose prices were ramping upwards on a sea of delusional optimism. As soon as the credit bubble ended and housing began to retreat, these assets would free fall like an Acme anvil in a Roadrunner cartoon — and the bankers were the Coyote.
Uh-oh, this was gonna be a problem. So the bankers began to lobby FASB to change the rules governing Fair Value Accounting. Sure, it was hugely helpful on the way up, but now, reporting actual holdings — previously marked at all time highs — was becoming problematic.
I had referenced this little-noticed, but highly significant accounting standards change in a posting from last year, which provides a fascinating segue into the point of this post:
As Eskow said above, the bankers just want to make it seem that they’ve actually produced some semblance of profits for their shareholders so they can continue to collect their exorbitant bonuses. That greed leads the bankers to convince regulators to help them avoid realizing the losses they should rightfully incur for such terrible investments. That dynamic then leads to continued uncertainty in the market, which causes the banks not to lend to businesses, individuals, or even to each other. Greed has never run so rampant in the streets, and it is now manifestly clear that it is the greed of the privileged few that is genuinely handcuffing any sort of economic recovery for the rest of us. Government regulators have bought into this system for years – when Eliot Spitzer began to make a stink, he was publicly disgraced and muzzled quickly, lest his accusations about the rotting core of the financial system lead people to look too closely so that the house of cards fell.
Government has been complicit in this scheme since day one, which is the real reason none of the fraudsters have been put in prison yet – the circle would likely extend too widely and might ensnare some of those who are supposed to be on the “good” team. We can’t have change in this country until we have an honest accounting of the mistakes of the past, and I surely hope that the state Attorneys General are allowed to run their investigations as they see fit, with no White House interference. The President’s actions in confronting this crisis, including the actions of his deputies, will show just how committed to change he really is. (emphases mine)
Okay, well the incredibly flawed 50-state Attorneys General settlement deal appears to be fatally wounded, despite the Obama Administration’s best efforts to protect the precious constituents banks from having to own up to the rampant fraud they perpetuated throughout the mortgage market in the 2000s. My hope last year was misplaced, truly. Ritholtz on mark-to-market again:
The bottom line is this: Investors do not really have a clear idea of how healthy any of these banks truly are. We do not know the state of their balance sheets. We do not know what their exposures are to mortgages, to Europe, to Greece, etc. They could all be technically insolvent, as far as any investor can tell.
And that is exactly how the bankers wanted it.
But given the trouble in Europe, and the likely problems in housing if the US goes into a recession, Investors have decided they cannot take the risk of a holding an opaque, possibly under-capitalized probably over-leveraged financial firm blindly. They are telling the banks no thanks, we are not interested, we are going to be prudent and we have to assume the worst. Hence, for the second half of 2011, they have been selling off their holdings in these opaque, potentially insolvent too big to succeed entities.
Bankers, enjoy your beds. You made them, now lay in them . . .(emphasis mine)
And not to put too fine a point on it, but in the same post from last year I had quoted at length economics blogger Steve Waldman about a meeting he attended with Treasury officials and other prominent bloggers in Washington, which touched on the Home Affordable Mortgage Program, or HAMP, the mortgage-modification program:
The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. (emphases mine)
Sad to say, we know VERY WELL now that the patient has not even begun to “heal” – as noted in Ritholtz’ quotation from above. Well-functioning markets require some measure of transparency in order to facilitate price discovery; the banking and housing sectors are far from transparency, even to this day.
And yet, it was quite distinctly government actions, government interventions, which have helped prop up the zombie banks, despite the very real possibility that a number of them may be effectively insolvent. Those banks have rewarded their executives with exorbitant bonuses and have lobbied hard against any regulations to rein in their excessive risk-taking, despite all of the government help they have willingly received (and asked for!)
That our government, which supposedly is voted into power by us and represents us, is actively working against the interests of a broad range of Americans in perpetually siding with the banks is, I believe, a strong part of the Occupy Wall Street movement’s anger. The people have no voice any longer in this schema – the “change agent” we voted into power in 2008 is perhaps as captive, if not even more so (and more subtly, I might add) to the moneyed interests of the country than was his predecessor. And that’s saying something; something deeply unsettling.
The conversation in this country between the institutions and the masses has been one-way for far too long, and I believe therein lies the power of Occupy Wall Street; they do not seek to add to the cacophony of voices that fill up the perpetually dead air of cable news, but rather simply, to be. That is their protest, the being en masse, as I referenced last night. It is to reclaim public spaces, and through their continued and determined presence, public discourse.
JW Mason spoke to this dynamic movingly yesterday:
Most of us very seldom experience ourselves as political agents, in the sense of being active participants in the collective decision-making of our community. For better or worse, most of the time we delegate collective decision-making to specialists who represent us more or less faithfully, as the case may be. The only reason for protest -- for any kind of mass politics -- is that this system has broken down. The message of any protest is: There is a political subject, a We, that is not being represented. This, in the broadest possible way, is what the "99%" rhetoric is saying, and why it resonates. At some point, if a when movements like this are successful, some new more legitimate form of representation will be established, as people form new collective identities and new norms of collective action. But it's foolish to criticize an assertion of the failure of representation for not itself being an effective representative, with a specific set of demands and a strategy to carry them out. (emphasis mine)
The 99% want justice, we want rules to govern fair play, and we want to regain the sense that the odds are not stacked against us, as they have been for so long. We cannot rely on elected officials to do our bidding, as their competing interests (primarily the overriding interest in re-election) will guarantee that the peoples’ interests are not fully represented. The interests of the few tend to run counter to the interests of the many; how much more is this dynamic amplified when we are talking about the interests of the 1% in relation to the interests of the 99%? “Policy” as currently constructed, is not working in favor of the polis, as one might hope, and the failure is so widespread, so systemic, that it is difficult to put the diagnosis into one coherent message.
The inchoateness of the Occupy Wall Street “message” stems from that sheer magnitude of failure in our society, at all levels. If we are going to vote and be taxed to pay for “representation” we better damn well get some adequate representation. Alas, that is most definitely not happening at this stage in history.
I plan on going to the local Occupy LA gathering tomorrow evening; I will share my thoughts afterwards on what I hope will be an inspiring event.
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