Fraudonomics
There was a strange moment last week during President Obamas speech at Cooper Union. There he was, groveling before a cast of Wall Street villains including Goldman Sachs chief Lloyd Blankfein, begging them to Look into your heart! like John Turturros character in Millers Crossing when out of the blue, the POTUS dropped this bombshell: The only people who ought to fear the kind of oversight and transparency that were proposing are those whose conduct will fail this scrutiny.
The Big Secret, of course, is that every living creature within a 100-mile radius of Cooper Union would fail this scrutinyor that scrutiny, or any scrutiny, period. Not just in a 100-mile radius, but wherever there are still signs of economic life beating in these 50 United States, the mere whiff of scrutiny would work like nerve gas on whats left of the economy. Because in the 21st century, fraud is as American as baseball, apple pie and Chevrolet Voltsfrauds all we got left, Doc. Scare off the fraud with Obamas scrutiny, and the entire pyramid scheme collapses in a heap of smoldering savings accounts.
Thats how an acquaintance of mine, a partner in a private equity firm, put it: Whoever pops this fraud bubble is going to have to escape on the next flight out, faster than the Bin Laden Bunch fled Kentucky in their chartered jets after 9/11.
And thats why this SEC suit accusing Goldman Sachs of fraud is really just a negotiating bluff to give Obamas people some leverageor its supposed to be, anywayaccording to the PE guy. He dismissed all the speculation that the fraud investigations would turn on other obvious villains like Deutsche, Merrill, Paulson & Co., the Rahm Emmanuel-linked Magnetar and so on.
You dont get it, Ames. Even Khuzami, the SEC guy in charge of the Goldman case, is a fraud; the fucker was Deutsches general counsel when they pulled the same CDO scam as Goldman. You have no idea how deep this goes.
And its clear that a lot more people here are aware of how fundamentally rotten things are but theyre not willing to face the big fraudonomics bummer yet, preferring instead to stick with specific accusations.
My position on this was, Good, throw the book at those crooks too, I dont see what the problem is here.
This was exactly what I argued a week ago, during a verbal slapfight with that acquaintance of mine. We were making a scene in a Midtown yuppie restaurant, arguing over just how much damage Wall Street had caused, and what to do about it.%u202F
His position was indefensible, and he knew it, so he switch-
ed tactics:
OK Ames, which bankers would you throw the book at? Because youre arguing that theyre all guilty. So which ones do you go after? Two of them? Three? Half of them?
Every last one of them. Lock em up in one of their private prisons.
Not gonna happen, Che.
Che? Me? Listen, Scarface, Im about law and order. Dont any of you PE degenerates believe in that anymore?
OK, heres the deal, Che. Im going to walk you through this nice and slow so that even an agave-sweetened hippie like you can understand this. Stick with me, this is gonna be a little complicated. Ready? And so he began.
Lets say the government decides one day, You know, we oughta listen to Che here, lets throw the book at every firm and every executive that our people can make a case against. Because you know, gosh, its all about rule of law and blind justice, just like Che says. OK, so now this means indicting just about every serious player in finance, so they take down Goldman Sachs, they take down Citigroup, JP Morgan, BofA and they also serve all the big funds who are at least as guilty, if not more. So they shut down Pimco, Blackrock, Citadel maybe they indict Geithner and Summers, haul in some of Bushs crooks right?
Go on, Im gonna order some hot, buttered popcorn for this. Dont mind me. I liked what I was hearing so far.
OK, now guess what youve just done? Youve just caused the markets to completely tank. Remember what happened after the Lehman collapse? Remember how popular that made every politician in Washington? Still wondering why they coughed up a trillion bucks? They were scared for their lives; thats why they voted for that bailout. Youd have done the same goddamn thing. But if we go after everyone guilty of fraud and theft, the market crash this country would see would make 2008 look like Sesame Street. Open that can of worms labeled Fraud and the whole fucking economy collapses. You may as well prosecute people for masturbating. No one will know where the fraud investigation stops and who will be charged nexteveryone will try to cash out, and the markets will tank to zero. And guess what happens when the markets tank to zero? Every fucking American with a retirement plan, or an investment portfolio, or a 401kevery state pension plan in the country, every teachers pension fund, every firemans pensionevery last one of them will be wiped out. Thats what the Lehman collapse taught us.
Us? It didnt teach anything but that this country is run by maniacs.
Jesus H. Christ, youre even more clueless than the idiots who managed the Lehman collapse. I mean, didnt everyone get it how badly those idiots screwed up with Lehman? It was the biggest screw-up this hemisphere has ever seen. You had Secretary Paulson and Fed Chief Bernanke scratching their asses not knowing what to do, so then they go, OK, were supposed to be a free market economy, and were supposed to be the Republicanslets try something different for a change since nothing else is working. Lets go out on a limb and actually give this free market thing a whirl. Who knows? Maybe the free market really works the way we always say it does. Nothing else seems to work, lets let the free market decide Lehmans fate. Maybe corporate-socialism isnt the answer. So they hung Lehman out in the free-market, and BAM! The. Shit. Hit. The. Fan. No shit, dudesthe free market is for suckers, didnt your daddy teach you idiots that? Not only did Lehman collapseeverything collapsed; confidence in the entire system collapsed. And heres what Im trying to explain to simpletons like you: Our economy is just a confidence game. Dont ask me how it got this way, dont care.
I tried saying something insulting to him, but he just talked right over me. He was on such a roll.
Im sure you have the answer, you and Ron Paul and all the other pot-smoking libertarian do-gooders have it all figured out. But what Im saying is, no confidence means end of the confidence game. Thats what Lehman showed. Every single player in finance suddenly had to face the fundamental problemthis whole fucking economy is built on fraud and lies and garbage. So when Lehman collapsed, every single player panicked, going, If Lehman was nothing but a Ponzi schemeand I know what Im running is a Ponzi schemeholy shit, that means everyone else is running a Ponzi scheme too! Run for the exits! No one trusted anyone else, everyone pulled out, and the entire global economy collapsed just like that. And that meant your parents, my parents, every teacher, every fireman, every person in the country going into retirement, every price on every assetwiped out.
And heres what Im trying to get you to understand: In the grown-up world, when an entire countrys savings accounts are wiped out because of some do-gooder and his law books and his Thomas Jefferson What about free and fair markets? crap, that is a big problempeople dont give a fuck about Jefferson and free and fair markets, they just want their savings to be worth something. And people are right: Jefferson was an imbecile. He should have been a folk singer, not a Founding fucking Father. But thats another issue thats over your headthe point is, the guy who destroys this economy because its the right thing to do will have to flee for his life, and whatever president or political party was in power when that decision was made will be out of power for the next 200 years. Thats why Washington panicked and passed the bailout, they didnt want to be the fools whom all the Ponzi victims blame for tanking the Ponzi scheme, so they broke the glass and pumped up a newer, bigger Ponzi scheme. It was an expensive 14 trillion dollar lesson in, Stay the fuck away from free-market experiments, assholes! How naive are you people to actually believe that free market crap? The problem is when people in power are stupid enough to listen to guys like you: all the do-gooder libertarians and the do-gooder free-market Republicans who forgot that theyre supposed to lie. Hello!
Libertarian, me? Since when was I ever a libertarian?
Thats my point: Fools like you dont even know who you are anymore. They forgot that theyre supposed to lie about all that libertarian free-market shit, keep it far the fuck out of policy. But instead of just lying about free-markets while secretly propping up Lehman, the idiots actually tried pulling off a free-market miracle, and we had to pay $14 trillion just to find out what I could have told them for no fee at all, which is: Hey, assholes, youre supposed to be hypocrites, OK? Youre supposed to be two-faced free-market liars, not libertarian Quakers! Youre not supposed to believe in anythingyour job is to get up in front of the public and lie about free markets and the rest. Period.
Thats it, how fucking hard is it? Look, watch my face: Say one thing out of one side... and do the other out of the other side. Got that? Let everyone else whine and cry about, Ooh, thats not fair, ooh, thats a bailout, thats socialism, thats corruption. Thats what losers dothey whine. You, for example, Cheyou whine all the time, and look at you... Can you pay the bill for this meal? Is there a libertarian on earth who can afford to buy a decent meal in Manhattan? And now, look at me: Im a hypocrite. Hell yes I am! I lie every day of my life, I lie to myself in my sleep. Hell, Im lying to you right now, in fact I dont even know what the fuck Im saying anymore because Im so used to lying. And yetwhos the guy with the black card? Whos the one whos going to pick up the check tonight? Guys with power, guys like me, we lie. You got that? Lie as in My Lai the massacreas in, My Lai you long time, me so free-markety. You distract the dumbshits with free-market B.S. because hey, for whatever reason, thats what the public likes to hear, it doesnt really matter what lie you feed them so long as its the lie that puts them in a trance. And then behind the scenes, you do the very opposite: You fix the game, you cover up this problem here with those funds there, you move shit around, you skim budgets and you subsidize the system, you cover up the bad shit and once in a while throw a has-been to the wolves to keep the public entertainedthats the way the system works, and anyone whos an adult understands that. And everyone who doesnt understand that can go form an online libertarian chat group and complain with all their little libertarian friends about free markets and Jekyll Island and Wahhh! Its not not fair, waahhhh!
Whats with the libertarian accusation?
Its just that you all sound the same to me. Libertarians, hippiesis there really a difference? You all whine alike: Its not fair, man! Ooh! You cant do that, its fraud, its corruption, ooh no! Or: Its the income inequality, man; Goldman Sachs controls us all man; its socialism for the rich; its all too scary for my retarded 5-year-old libertarian brain! Seriously, anytime I meet libertarians like you
ListenIm not a fucking libertarian, OK? I want free handouts. How clear do I have to make this? Mehandouts. MeBig Government. I want to collectivize your productive cash, because I am a resentful parasite. Are you capable of processing a single word of what Im saying to you, Spaz?
Uh-huh, sure, whatever. Heres the thing: I think its great that you and your friends memorized Road to Serfdom in between Star Trek episodesno really, Im happy for you. Yeah, were all so proud. But heres the thing: We grown-ups are really, really busy now trying to sort out the free-market mess you made with that Lehman move of yours. Yeah, so why dont you run along to your libertarian chat rooms and have your little debates about Jekyll Island and the gold standard, because it really means a lot to us. And report back to me as soon as you have it all figured out, mkay? Just get the fuck out of my face and leave the adults alone.
It got a lot more vicious and personal than this, but when our verbal slap-fight endedand he paid the billI thought about what he said, and it made a lot more sense. Fraud has become so endemic in this country that its woven its way into Americas DNA, forming a symbiotic relationship that cant be undone without killing off the host. If they push it just a little too hard, the entire American economy could crash, asset values could tank, and that means tens of millions of extremely pissed off retirees and Baby Boomers. As the Wall Streeter put it: Whoever is responsible for bursting this latest bubble by exposing all the fraudand tanking all the marketswill not only be out of power for at least a generation, but theyll all have to get radical reconstructive surgery on their faces and seek political asylum somewhere remote. No one wants to be that guy, and thats why its not going to happen.
That may be true, but all bubbles to eventually burst, all Ponzi schemes do collapse. The only question is when. For those of us not on the verge of retiring, the sooner we have this day of reckoning and get it over with, the better. ------
Not sure how pervasive fraud is in our society these days? Check out Mark Ames' quick and easy [Fun Fraudonomics Facts here].