Eat, Pray, Buy Junk

I admit I have not and will not read nor watch Eat, Pray, Love, but it has taught me one valuable lesson: capitalism can consume any cultural phenomenon.

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'You loser!" screamed Katie, aiming a vase at her husband. "You've destroyed my life,'' she continued, hurling it. "Just look at my hair, look at my nails! You loser, you jerk, you nobody."

I don't feel sorry for the rich men and their gold-digging wives described in this recent Telegraph UK article. Both sides are selfish and materialistic: the women who marry men for money and then leave them when the property portfolios shrink, and the stupid shallow men who want trophy wives and can't recognize real love. Maybe they deserve each other.

Whether these stories of toxic wives are a real trend or not, I think the super-wealthy are deserving of some kind of comeuppance. These are the people who enabled the current financial crisis. Using Citigroup as one example, the New York Times exposes how some of these millionaire bankers either had no idea what they were selling or took no responsibility for it:

According to a former Citigroup executive, Mr. Prince started putting pressure on Mr. Maheras and others to increase earnings in the bank’s trading operations, particularly in the creation of collateralized debt obligations, or C.D.O.’s — securities that packaged mortgages and other forms of debt into bundles for resale to investors.

Because C.D.O.’s included so many forms of bundled debt, gauging their risk was particularly tricky; some parts of the bundle could be sound, while others were vulnerable to default.

“Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process,” a former Citigroup executive said of the bank’s big C.D.O. push. “Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’ ”

It appeared to be a good time for building up Citigroup’s C.D.O. business. As the housing market around the country took flight, the C.D.O. market also grew apace as more and more mortgages were pooled together into newfangled securities.

Of course, it wasn't impossible to predict the meltdown. Meredith Whitney, an obscure analyst of financial firms for Oppenheimer Securities, understood the mismanagement of Citigroup and predicted the company would go bust:

From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business.

Pair these idiot bankers with the regulators who destroyed regulations, and you have one big dysfunctional relationship which is, sadly, a very real trend. Although I'd personally prefer the cathartic act of smashing a vase across their skulls, we are instead expected to bail them out.

Cutting Red Tape

I wish I could say it was photoshopped, but this outrageous picture of regulators destroying regulations was taken at a 2003 press event. Yesterday's Washington Post article titled Banking Regulator Played Advocate Over Enforcer mentioned this unfortunate image:

In the summer of 2003, leaders of the four federal agencies that oversee the banking industry gathered to highlight the Bush administration's commitment to reducing regulation. They posed for photographers behind a stack of papers wrapped in red tape. The others held garden shears. Gilleran, who succeeded Seidman as OTS director in late 2001, hefted a chain saw.

The other men in the picture were identified by CalculatedRisk: John Reich (then Vice Chairman of the FDIC and later at the OTS), James McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, and Ken Guenther of the Independent Community Bankers of America.

As we lurch from financial crisis to financial crisis, we would all like a simple explanation. Unfortunately, life is complicated:

As Congress and the incoming Obama administration prepare to revamp federal financial oversight, the collapse of the thrift industry offers a lesson in how regulation can fail. It happened over several years, a product of the regulator's overly close identification with its banks, which it referred to as "customers," and of the agency managers' appetite for deregulation, new lending products and expanded homeownership sometimes at the expense of traditional oversight. Tough measures, like tighter lending standards, were not employed until after borrowers began defaulting in large numbers.

The agency championed the thrift industry's growth during the housing boom and called programs that extended mortgages to previously unqualified borrowers as "innovations." In 2004, the year that risky loans called option adjustable-rate mortgages took off, then-OTS director James Gilleran lauded the banks for their role in providing home loans. "Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion," he said in a speech.

At the same time, the agency allowed the banks to project minimal losses and, as a result, reduce the share of revenue they were setting aside to cover them. By September 2006, when the housing market began declining, the capital reserves held by OTS-regulated firms had declined to their lowest level in two decades, less than a third of their historical average, according to financial records.

With no end in sight for this financial crisis, some are perceiving a fundamental flaw in capitalism which will leave us all relying on the barter system. I guess now is a good time to learn how to hunt and fish?