Elevator going down.
Gleaning the daily news – probably far too much for my mental health and certainly a major distraction from finishing up my ever more irrelevant “work” of editing and finishing up 3 new films – one comes across increasingly numbing figures. Dr Doom, a.k.a. Professor Nouriel Roubini for example, has us in for 3.7 trillion bucks of banker-stock funny money; others have us in for 7 trillion. To understand how this happened, the simple logic that governed Wall Street, and on a far lesser scale governs, for example, Hollywood (or most film producing pockets) is instructive:
You have a system which rewards, both financially, but also in less direct manners, the making of profit, as measured in relatively short-term increments, like “a quarter” (3 months), or a year. On Wall Street this reward is delivered as a lump at the end of the year, based on what “profits” you brought into the company. This is on top of what most souls would consider a good substantial salary for the year ($100,000 or so, minimum). This “profit” is measured in curiously abstract things – slips of paper in your wallet, numbers on an accounting sheet. In this system your reward is somewhat proportionate to your capacity to “creatively” find news ways to make more money/numbers. And you get your pay-off at the end of the year. The higher up the chain, the bigger your cut, so John Thain (Merrill Lynch to BofA to fired) could make, oh, $300,000,000 in bonuses in a year at Merrill-Lynch. Why? Because the accounting books showed they made X gazillions in $$$$. He got his cut, then and there. If it all proved bullshit later, well, in that fabled Americanism : money talks and bullshit walks. He’s got the money and you’re walking. Or, there’s a sucker born every minute, said Mr Barnum.
Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.
And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.
What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.
Wrote Paul Krugman, Nobel Laureate, etc. today
We note that Mr Bernanke and Geithner were and are both up to their necks in producing the present problems, and their view of the imaginary value, non-zombie status, etc. of their friend’s businesses is, to put it modestly, self-serving. And false. And ought to be criminal.
Just like in Hollywood producers like big budget films, which in turn gives them a numerically a bigger upfront sum of the budget. In many places a producers cut is more or less fixed, like 10%. Now if that stays the same whether you make a $500,000 film (50K cut) or a $100,000,000 one ($10 million), it makes a certain kind of avaricious sense that you’d prefer the bigger budget. Especially since your cut comes in front, and if the film totally bombs you don’t have to cough up the money as punishment for others’ losses. So from your viewpoint a huge turkey is financially a lot more utilitarian than a little masterpiece. The distortions of this incentive trickle-down in the movie biz as in Reaganomics: the movie star gets 10 mil for 6 weeks “work;” the gorilla grip gets $500 a day to mostly sit on his butt waiting to move something (not bad for blue-collar labor). And none of them have to pay back if it all fails. And kind of like on Wall Street, failure doesn’t condemn you to loss of work, you just move to some other entity to do more of the same.
Same “done deal” on Wall Street. So the wizards of finance, our Masters of the Universe, have a very compelling logic to either push their luck or even to simply invent fraudulent ways to pad the balance sheet: they get their cut at the end of the year. So, over time, unregulated, thanks to having bought off the US Congress and individuals in the existing regulatory agencies to “loosen up the rules” so they could be economically freer to “innovate,” these brightest of the bright invented an inpenetrable mumbo-jumbo of arcane jargon which even they couldn’t quite follow. Although many seemed to follow it closely enough to know when to dump their stocks and bail-out, dressed in their golden parachute pre-contractual departure fee, just by coincidence before the stocks in their endeavors nose-dived and left their “investors” empty handed. Done collectively, pressed by the showy “success” of the folks down the street, a good number of these souls have done very well by this system – such as Henry Paulson, recent US Treasury Secretary, a big supporter of loosening the regulatory rules for investment banks, plain old vanilla banks, and more or less any kind of bank, trader, etc., and who himself made a very handsome bundle for his bother, or the current Secretary, Mr. Geithner, a protege of Mr Paulson, who similarly made his bundle before becoming head of the New York Fed, under whose regulatory nose all this occurred. As the Hollywood counterparts do, they of course got their cut in front, and though as it turned out all the “profits” were in fact little more than accounting sheet tricks of leveraged loans to dead-beats, well tough shit, it was all “legal” as they say, and they, of course, are keeping their just “rewards.”
And, since most of these folks are Republicans, as the game has fallen apart and the flimsy architecture of paper is tumbling to the ground all about them, naturally they complain about imminent increases in their taxes. Or they insist that Reaganomics works, and tax cuts should remain, and loose regulation, and that the real problem was those deadbeats who bought a McMansion on borrowed dough, and didn’t pay up on schedule, or that the few regulatory controls left were to blame! Now a year or so ago they could have waxed eloquently on how Reaganomics worked, and pointed to all the trickle down “wealth” which one could see, say, in your local Starbucks, or the gourmet restaurant down the street, or the vast assortment of McMansions lining the outskirts of all our major cities: how’s that for fuckin’ wealth, and all thanks to the miraculous effects of an unfettered Free Market.
Per capita US credit card debt was around $10,000 in 2008. It all adds up to 2.6 trillion, of which, as jobs are shed, borrowing from that shrinking asset called your house stops, the credit card issuers hike the rate to 30% because you missed a payment, etc. etc., doubtless much will turn into “default” for which our wonderful government will print up another 2 trillion to throw, no, not at you, but at “the system” – the very banks which knowingly loaned the money in their interests of making more money (at 10-30% interest, made out in many cases to persons who had no such capacity to earn and pay).
To say the wonderful wild wealth of the last decades was all a con, a fraud. Those on the very top did very well by it, and will retain their 3rd house in the Hamptons, their pied a terre in Paris, and all their other dubiously begotten wealth. Though perhaps some, on their drive to the Montana gated community nestled near Yellowstone will find the occasional gunshot aimed their way by the local disgruntled ranchers or meth-heads whose lives have been discomfited by the downturn.
Of course in the present all-negatives climate, movie ticket sales are in a sharp uptick, nothing like burying one’s head in the gossamer sands of a Hollywood fantasy.