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Paul Andersen: Fair Game

Paul AndersenThe Aspen TimesAspen, CO Colorado

Since legal proceedings against AIG have been dropped for its role in bringing on the Great Recession, here is the conclusion to the subprime mortgage morass: The same people who failed to see it coming are the people now in charge of reforming the system that enabled it.”They, of all people,” writes Michael Lewis in “The Big Short,” “became important characters operating behind the closed doors.” And what did they do behind closed doors? They rewarded the very institutions that failed us, paying the bills with copious bailouts gratis of the American taxpayer.For most Americans, the complexities of financial philandering and the veils of deceit resulting in the housing crash will never be fully understood. According to Lewis’ book, few people in banking, finance and regulation knew what was happening, either.”The Big Short” reveals a sordid truth about capitalism. When it goes bad, it goes really bad, and when it goes bad on a large scale, it becomes a cataclysmic systemic failure that touches everyone, worldwide. Clearly, greed knows no bounds in Lewis’ depiction of gross self-interest at the highest levels of finance.Consider the capricious terminology used by subprime insiders: collateralized debt obligation, mezzanine tranche, residential mortgaged-back security. You won’t find the French term “tranche” in Webster’s dictionary, unless it’s the most current, online edition. The word means a partition of debt that was stacked in towers of debt, all bundled and sold to clueless investors who believed the fraudulent ratings of Moody’s and Standard & Poor’s.What occurred on Wall Street and brought down the U.S. economy was tranche warfare waged against the financial world and engineered by the best and brightest number-crunchers. These so-called “quants” invented a confusing lexicon intended to limit competition, befuddle bosses, bewilder regulators and obfuscate customers, all of whom were duped into leveraging bad debt against unsustainable aspirations for the American Dream.Not only were these money changers in the temple, they were the self-proclaimed high priests babbling oracular incoherencies that only other high priests could interpret. They applied creative genius to inflate investment portfolios while heaping toxic debt upon the gullible poor and middle classes.”The upper classes of this country raped this country,” excoriated one independent financier quoted by Lewis. “Not once have I come across a person inside a big Wall Street firm who was having a crisis of conscience. Nobody ever said, ‘This is wrong.'””The Big Short” is titled after the “shorting” of doomed investments by financiers, like the one quoted above, who foresaw the failure of overrated loans and profited from it. These players made tens of millions of dollars betting against subprime mortgage bonds and the banks that created them through a bizarre insurance structure, held mostly by AIG. In fact, they went short on America in a convoluted collapse that amounted to a treasonous assault on national security.The lure of untold wealth on Wall Street overcame ethics and conscience through a deficit of personal and institutional values. After the crash, the U.S. government backed up the rip-off artists with billions in bailouts, making it clear that free-market risks apply only to those who struggle on the bottom tiers, sparing those who undermine the entire economy for their feckless gain. Taxpayers are still underwriting failed executives who hold handsomely paid jobs and receive outrageous bonuses.Maybe anger is the wrong reaction, but when you read Lewis’ book and learn that billions of dollars have been handed out to errant money managers who bought and sold America, anger is a difficult reaction to contain.How much better could those billions be spent on health care, education, alternative energy, environment, mass transit, you name it? The only consolation is if the economic collapse instituted a real change in values throughout American capitalism. If you believe that, perhaps I can interest you in a restructured, renamed debt obligation for a subprime mezzanine tranche.

Paul Andersen wonders how many crooks it takes to change a financial system. His column appears on Mondays in The Aspen Times.


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