I watched two 2008-crisis related documentaries yesterday. I started with The Flaw and finished with Hank. Did I learn or hear much I haven't heard before? Not really, if one thinks of the specifics we all heard and read in the blogosphere and the Press then, with only a few noticeable exceptions. It's about those I'm posting this.
One** was the moment when Alan Greenspan, the Almighty Warlord of Capitalism of the 90ies, admitted that he became "distressed to find out about a flaw in the model of how the free markets were actually structured", that he personally didn't realise during the 40+ years he's been active in the Finance universe, and that he eventually admitted before a US Congress committee that "we were not all that smart", only falling short of actually admitting that "we were basically plain stupid and arrogant, and have allowed Armageddon to happen!"
My 'favorite' Yale Professor of Finance, Nobel Laureate, Robert Schiller*, said he had found that the 'housing industry' prices corrected for inflation had not fundamentally changed from before WW2 up until the year 2000, from which point they started heading up... up... up... towards the stratosphere (a.k.a. the housing bubble).
I liked a clear distinction someone made** between 'assets' and 'goods'. Assets are thingies one uses for investment in order to generate financial income, and Goods are thingies that people typically use and/or consume to get thru another day. People should not mix the two and employ 'goods' as 'assets'. This was an explicit criticism to all those responsible for packaging sub-prime mortgages, slicing them in tranches of increasing risk and selling them to investors in the form of non-transparent investment strategies a.k.a. CDOs. It seems CDOs used to return lots more profit than traditional investment alternatives. That's why investors loved them and they became so popular. Until the financial tsunami drowned everyone by surprise with CDOs in their portfolios.
Another point that was made** was something we often heard; that despite the crisis the world's richest keep increasing their wealth. Money disappears from the pockets of the middle class and the poor into the pockets of the top richest 1% of the population, especially the 0.1%, and even more in the 0.01%. We are talking tens of billions of dollars here to hundreds of billions, mind you. The commentator said that money obviously shifts from millions of households who lose purchasing power, and, in the process, hurt severely the economy, into the pockets of those who have no use for it whatsoever (other than boosting their ego and showing off in the Forbes list of the World's Billionaires). Luck has it that this morning a similar article popped up in Ta Nea's online edition discussing Portugal's riches and how during just one of the Nation's worst crisis years they added more than 12 Billion € into their personal fortunes. Mind you, many of these Midas's are 75+. Do they ever retire them greedy bastards? This kind of money won't buy them love anymore... that's for sure.
Hank*** was a sort of biography of Henri Paulson, Ex-Goldman Sachs Chairman and CEO, who served as Treasury Secretary during George W. Bush's final years (2006-2009). His name was indadvertedly connected to the events at the eye of the storm of the September 2008 Financial outburst, Lehman Brothers bankruptcy, Bear Sterns takeover, AIG bailout, TARP, and the further bailout of the seven largest US Banks. It was good to hear it from the horse's mouth, although what he or anyone involved had said and done during Doomsday of that dreadful weekend while trying to sell Lehman to Barclays and failing, were already shown on TV and written about a million times.
One little detail was striking to me though. It was actually about Paulson's wife Wendy, who emerged from this documentary as a very strong and straightforward personality, and about what she responded, when, after the collapse of the Barclay's deal, Hank in desperation stepped out of his meeting to call her, admittedly overwhelmed by fear. When he mentioned to her that he had suddenly felt very afraid, she cited a line from Apostle Paul's 2nd letter to Timothy, 1:7... "For God hath not given us the spirit of Fear but of Power and of Love and of a Sound Mind****" (KJV). That phrase alone shook him up and gave him the courage to go back and wrap-up business, with Ben Bernanke and Tim Geithner on his side.
A final remarkable point that we also know and heard a lot about was Paulson's reaction to the interviewer's question about banks, who, despite failing miserably, used bailout money to pay hefty bonuses to their executives; indeed the banks, not just investment banks but also the likes of Citi and BoA, shared a huge part of responsibility in the notorious 2008 financial clusterf@ck. The least one could consider acceptable was bonus payments to the top in a business as usual fashion. No wonder 'Occupy Wall Street' became a world movement in the years that followed. Hank (you don't mind me calling him Hank, everybody else does) smiled bitterly and actually jumped saying 'not that one again' and further reacted emotionally and he correctly showed his obvious sadness even talking about it. He had forgotten the fundamental dogma of Wall Street at that moment, though. Of which he has been part for decades before then. That 'Greed is Good'...
* I actually watched a number of his 2011 "Financial Markets" lectures on iTunes-U before 'The Flaw' yesterday, and, my goodness, Mr. Nobel Laureate is such a bore in terms of lecturing techniques. Someone should really talk to him. Teachers should stare towards their students for most of the time, not trying to 'uncover' hidden messages from God by staring at the blackboard instead...
** The Flaw
**** οὐ γὰρ ἔδωκεν ἡμῖν ὁ θεὸς πνεῦμα δειλίας, ἀλλὰ δυνάμεως καὶ ἀγάπης καὶ σωφρονισμοῦ.