In an article in Today's New York Times, the SEC has filed a civil law suit accusing Goldman Sachs of selling investments they knew would fail, and then covertly betting against those sales, thereby richly profiting from the losses taken by their investors.
This is a perfect example of a zero sum gain, whereby one person only wins when someone else loses. of course, this example also includes straight-up fraud, which is even more ethically disturbing than taking advantage of asymmetrical information.
This is yet more evidence that the financially industry has become nothing more than a dishonest car mechanic who tells you your brakes need fixing when they don't.
This is yet another example of why we need financial reform in this country. It seems odd to me that a single political party is unified against this reform. It couldn't be that they are hoping to obstruct and win short-term political points...
Friday, April 16, 2010
Thursday, April 15, 2010
The United States Financial Sector
I want to expand on a thought in my previous post and take it in a slightly new direction. I argued recently that Republicans (writ large, I take pains not to over-generalize as much as possible), true to Adam Smith, believe that the main goal in life is to maximize wealth, as individuals and as a society.
The distribution of this wealth is not important, just the sum total. Taken to an extreme, these people would prefer a world with 10 trillion dollars of wealth to a world with 5 trillion dollars of wealth, even if in the 10 trillion dollar world, only 10% of the population holds all of the wealth. Meanwhile in the 5 trillion dollar world, the wealth is spread evenly enough to afford everyone the basics of life: food, shelter, and basic health care.
This is a numbers game. The ultimate goal is to make the numbers as large as possible, without concern for how that tangibly affects human lives. For people who subscribe to this idea (and it is fairly predominant on the Right), this goal is akin to a moral good, because money equals happiness and success. And if you maximize the amount of money in the world, the argument goes, there is more for everyone. And, according to these folks, all it takes to acquire a chunk of this money is hard-work, intelligence, and an unhindered free market.
Of course there is no truth to these claims. The world of 10 trillion dollars does indeed have more money. But this world only exists where there is shocking inequality, massive market failures, poverty, and limited freedom.
In this world, where free-market advocates point to fairly arbitrary measures of the economy like GDP or the Dow Industrial Average, people put less of an emphasis on the equity and distribution of the growing GDP or the growing stock markets. By design, (and this is not meant to imply some diabolical conspiracy) the economic regime of the United States tends towards gross inequities in wealth. And wealth often begets more wealth, while poverty begets more poverty.
I believe that laws of supply and demand are true. I believe in markets and the power of incentives and price signals. And like anything else, these things can be abused, twisted and distorted to serve the interests of those who are able to either a) take advantage of loopholes in existing law or b) change existing law to their benefit. There is a place for investment banks and stock markets. They serve important functions. But when entire corporations exist solely to make money with no underlying value, or when corporations are willing to risk the bankruptcy of entire nations, I believe things have gone too far.
What you have them do, opponents will say, the ultimate responsibility is to the shareholders and to make money. Well I disagree. When all morality and sense of duty and responsibility has left the boardroom, financial and other crises occur.
The financial industry in the United States is morally bankrupt. It is guilty of multiple transgressions of ethics and the law, or at least the spirit of the law. Of course it is not the only industry guilty of reckless self-interest, but the consequences of its abuses are borne by people around the world, in ways only exceeded by polluting industries.
Now Republicans are fighting the financial reform bill, saying all it will do is provide future bailouts to banks. That claim is completely untrue. If anything the financial reform bill is too weak. But it is a start. I'll delve more into specifics and try to avoid ranting in my next post.
The distribution of this wealth is not important, just the sum total. Taken to an extreme, these people would prefer a world with 10 trillion dollars of wealth to a world with 5 trillion dollars of wealth, even if in the 10 trillion dollar world, only 10% of the population holds all of the wealth. Meanwhile in the 5 trillion dollar world, the wealth is spread evenly enough to afford everyone the basics of life: food, shelter, and basic health care.
This is a numbers game. The ultimate goal is to make the numbers as large as possible, without concern for how that tangibly affects human lives. For people who subscribe to this idea (and it is fairly predominant on the Right), this goal is akin to a moral good, because money equals happiness and success. And if you maximize the amount of money in the world, the argument goes, there is more for everyone. And, according to these folks, all it takes to acquire a chunk of this money is hard-work, intelligence, and an unhindered free market.
Of course there is no truth to these claims. The world of 10 trillion dollars does indeed have more money. But this world only exists where there is shocking inequality, massive market failures, poverty, and limited freedom.
In this world, where free-market advocates point to fairly arbitrary measures of the economy like GDP or the Dow Industrial Average, people put less of an emphasis on the equity and distribution of the growing GDP or the growing stock markets. By design, (and this is not meant to imply some diabolical conspiracy) the economic regime of the United States tends towards gross inequities in wealth. And wealth often begets more wealth, while poverty begets more poverty.
I believe that laws of supply and demand are true. I believe in markets and the power of incentives and price signals. And like anything else, these things can be abused, twisted and distorted to serve the interests of those who are able to either a) take advantage of loopholes in existing law or b) change existing law to their benefit. There is a place for investment banks and stock markets. They serve important functions. But when entire corporations exist solely to make money with no underlying value, or when corporations are willing to risk the bankruptcy of entire nations, I believe things have gone too far.
What you have them do, opponents will say, the ultimate responsibility is to the shareholders and to make money. Well I disagree. When all morality and sense of duty and responsibility has left the boardroom, financial and other crises occur.
The financial industry in the United States is morally bankrupt. It is guilty of multiple transgressions of ethics and the law, or at least the spirit of the law. Of course it is not the only industry guilty of reckless self-interest, but the consequences of its abuses are borne by people around the world, in ways only exceeded by polluting industries.
Now Republicans are fighting the financial reform bill, saying all it will do is provide future bailouts to banks. That claim is completely untrue. If anything the financial reform bill is too weak. But it is a start. I'll delve more into specifics and try to avoid ranting in my next post.
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