March, 2009 archive

Like this guy:

When his (Andrew N. Yao–ed.) Delaware-based student loan company went under in 2002, leaving an estimated $500 million crater, it was a road map of things to come nationally on a billion-dollar scale with subprime mortgages in place of the subprime student loans.

Only, instead of getting a federal government bailout, Andrew Yao’s story ends today with his reporting to federal prison to begin serving a six-year sentence on a dozen charges including bankruptcy fraud, wire fraud and making false statements.

The demise of Student Finance Corp. in Newark and the subsequent federal prosecution of Yao, its president and sole shareholder, was a cautionary tale that no one realized or understood was the shape of things to come.

Another quote from the article, from the pictures on the sidebar:

James Butkiewicz, professor of economics at the University of Delaware, says initiating loans and almost immediately selling them off created an incentive for companies to make as many loans as possible, no matter how bad, because someone else would be taking the risk

I tend to believe this, the Occam’s Razor of conspiracy theories:

Never attribute to conspiracy what can be explained by stupidity.

Rolling Stone has another take:

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

The whole article is worth it. It’s sprinkled with gems like this:

AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror.

H/T Alison for the link.

Addendum:

TPMMuckraker has a history of AIG Financial Products.

D-Day takes a look at the corporate bonus culture:

The decoupling of risk and profit is the issue here. Corporate titans never rise and fall on the merit of their superior intellect, and there has been a great shift to mke sure profits, both personal and corporate, are kept in private hands, while the risk is socialized. When times are flush nobody really cares about or at least pays attention to this; when the same people who wrecked the economy feel entitled to their ungodly profits, people get understandably upset.

The reasoning in the corporate boardrooms is actually pretty simpleminded:

1. I am the CEO/CFO/whatever.

2. I therefore must be a Master of the Universe.

3. I therefore am entitled to All that I Can Get.

They believe this reasoning even as the facts–all those arrows slanting downward to the right on all those charts–the facts of the business show that they couldn’t tie someone in a game of tic-tac-toe without phenomenal luck and chicanery.

Those who complain about an “entitlement society” are looking in the wrong direction. The sense of entitlement is not walking on the streets, not pumping gas in service stations nor building product in factories, not helping customers on the sales floor, not in the Bushie breadlines.

The sense of entitlement is in empty suits in fancy offices on the top floors of all those buildings in the center of town.