Video: Review of 4-Part Frontline Financial Crisis Series 'Money, Power, and Wall St.'

The PolyCapitalist is kicking May off with a number of must watch videos, and this epic 4-part Frontline special follows the crisis from what is arguably its point of genesis: a 1994 JP Morgan retreat in Boca Raton, Florida which of led to the creation of the first credit default swaps.

Frontline has done an incredible job getting many of the key players and insiders, including a number of top Wall St. bankers, to go on record about what happend. Even if you've read all the books, seen the earlier Frontline financial crisis special, and think you know all you need to about the financial crisis, this is still must watch.

The big new item for me, and I'm a bit surprised this has not received more ink, was the March 2009 battle between Larry Summers and Tim Geithner over what to do with the megabanks. My prior understanding was that Summers and Geithner were two peas in a pod. Not always it turns out.

According to Frontline, in March 2009 Summers, along with fellow economist Chritina Romer, pushed for what was called 'Old Testament Justice', meaning firing a bank CEO and or possibly nationalizing one of the megabanks. In contrast, Geithner, who it would appear is more of a protege of Bob Rubin than Summers, fought hard to treat the banks with kid gloves and use stress tests to help instill confidence back into the marketplace.

Obama ultimately sided with Geithner, which seems to contradict earlier reporting that Geithner had ignored Obama's instructions to dissolve Citigroup. Frontline definitely presents Summers in a better light and Geithner and Obama in a worse one.

I have only a minor gripe with this Frontline series, which is the annoying editing. In a multi-part, complex story, reusing clips to aid telling the story is probably unavoidable. However, I felt they recycled too many from within the four part series, as well as from an earlier Frontline special on the financial crisis from a couple years ago. But this is a minor, forgivable quibble given the extraordinary job the Frontline team did to compile and document the crisis up through present day.

Overall, perhaps the key point made in the series - and one I could not agree more with - is that the financial crisis still has not ended. Where it will go from here is as much dependent now on politics as markets or economics.

Video: Debt and Redemption Documentary

At the risk of sounding trite it's often helpful to put a face and voice behind the news.

This short documentary by VPRO, which does excellent work overall btw, has some good coverage of the fallout from the dealings by both small and large Italian municipalities in derivatives like interest rate swaps. And if terms like 'derivative' turn you off but you're still interested in learning more and trying to understand the financial crisis, then video is particularly recommended.

Interviews include the Rolling Stone's Matt Tabibbi, Brooklyn based investor-blogger Reggie Middleton, and former IMF Chief Economist and Professor Simon Johnson.

The most interesting fact from the documentary for me was learning how the City of Milan agreed to be on the hook financially to a bank in the event of a debt default by Italy (the nation state).

Are there any other municipalities which have contractually guaranteed the debt of a sovereign state?

Image of the Day

(click to enlarge)

In case you missed the video.

More on the story and fallout here.

Educational Site: If you are concerned about political reform, you might be interested in taking courses as a political science major.

Video: Niall Ferguson vs. Jeffrey Sachs

Transcript below:

Fareed Zakaria: Jeff, you were at Occupy Wall Street. You've in a sense lent it support. Why do you do that? What do you think is going on there?

Jeffrey Sachs: Well, I think they have a basically correct message that when they say "we are the 99 percent," that they're reflecting the fact that the top one percent not only ran away with the prize economically in the last 30 years, but also took the power, manipulated it, twisted it, broke the law. Brought the world economy to its knees actually, and it's time to correct things. And I think that that's what Occupy Wall Street is really about. The fact that every marquee firm on Wall Street broke the law in a major way, it's now paying a series of fines. Some people are going to jail. People are disgusted about this.

Fareed Zakaria: But isn't what has caused the one percent or five percent of the top to do well, these very broad forces of technology, the information revolution which have empowered global knowledge workers, which have empowered capital rather than labor? So if it's all these much bigger structural forces, is it going to be remedied by some kind of political solution like a Buffett tax?

Jeffrey Sachs: I don't think it is all that. I think that markets caused a widening of inequalities in just about every high-income country. But some governments did something constructive about it, where starting in 1981 the U.S. government amplified this in quite reckless ways.

Because when Ronald Reagan came to office, rather than saying we have globalization, we have competition, we now have to do something about our skills, our technology and so forth, he said that government is not the solution to our problems. Government is the problem. It was a fateful call. And this is the path that we've been on for 30 years of dismantling that part of our social institution which – institutions which could actually help with job training, help with education, help with science and technology in a more effective way.

But more than that, Wall Street didn't just gain from globalization, it has been completely reckless. They gamed the system. They packed toxic assets. They sold them to unwitting investors. They let the hedge funds bet against them. And the SEC is finally calling them to account.

But the public is disgusted because after that happened, lo and behold, the next thing is that they begged for bailouts; they got the bailouts. The moment they got the bailouts, they said, "Leave us alone", "deregulate", "free markets". So they're completely hypocritical in this behavior.

We want everything of ours until we need help, then we want your help, once we get your help, then we want everything again. And it's that kind of impunity that has brought people out around this country deeply angry.

Niall Ferguson: Well, first of all, I think it's important to avoid criminalizing one percent of the population which you just did, Jeff. I mean, there's no question that major financial institutions have been fined and rightly so. But to turn that into an indictment of three million people seems to me -

Seems to me actually rather reckless. And having watched what you said at Occupy Wall Street, I have to say I thought you overstepped the mark and ceased to be an academic and became a demagogue at that point.

Jeffrey Sachs: Whoa, Niall. You're the one who said that this -

Niall Ferguson: No, let me – no, let me finish, Jeff.

Jeffrey Sachs: The last time bankers came close to ruling America -

Niall Ferguson: Hang on, hang on. I let you have – I let you have your say.

Jeffrey Sachs: No, don't call me names like this.

Niall Ferguson: This is a demagoguic argument especially for somebody who knows that the principal driver of inequality has actually been globalization, not malpractice by Wall Street.

The second part of your argument is that banks misbehaved in Europe, too. I mean, those countries that did not go down the Reagan route have got banks that are insolvent, banks that were guilty of incompetence and malpractice.

So you argued that this was something specific to the United States. And the faults of – and the faults of Ronald Reagan.

Jeffrey Sachs: Of course it was.

Niall Ferguson: Just a second. The banks in Europe are in just as big a mess but they didn't go down the Reagan route. So it's not only bad economics, but it seems to me it's bad history and certainly bad politics.

Jeffrey Sachs: Let's talk what I said and what is important here. And what I've said is that in a society that is so unequal as ours and where the very top has abused the system repeatedly in the banks, the CEOs of this country taking home take-home pay hundreds of times their workers' pay, unlike any other part of the world, the hedge funds and the banks got unbelievable terms of the deal to get capital gains taxes, carried interest down to 15 percent tax rates. So outrageous compared to what the rest of America bears.

Niall Ferguson: You can't believe that this is the reason why the bottom quintile of the population is in poverty and has very limited social mobility. That's nothing to do with what happens on Wall Street, as you well know. The real problem that we have in this country, it seems to me, is declining social mobility, and not enough is said about that.

Jeffrey Sachs: Well, I write a great deal about it. And the big difference of social mobility -

Niall Ferguson: Right. And what is the principal of -

Jeffrey Sachs: The big difference of social mobility in this country is the lack of public financing for early childhood development, for daycare, for preschool, for early cognitive development, for nutrition programs, for decent schools, unlike all of the rest of the high-income world. We do not help the poor. And that's why our social mobility has come to the lowest level of any of the high-income countries.

And we are 10 or 15 percentage points lower in government revenues to help for that. And I'm asking in the book for just a few percentage points and some decency at the top that they start paying their taxes at a decent rate so that we can actually pay for preschool and pay for childcare. And that's what low social mobility is about, Niall.

Niall Ferguson: But when you look at the quality of public education in this country, you can't simply attribute its low quality to a lack of funding. And I think there's a legitimate argument that the biggest obstacle to social mobility in this country right now is not the fat cats of Wall Street, whom I do not rush to defend, but the teachers unions, who make it almost impossible to improve public school in cities like New York where we are today.

Fareed Zakaria: But would you comment on Jeff's basic point which is, you know, yes, it's not true that the gap has been produced entirely because of government policy, but that you could use government policy and government resources to help in various ways. Education may be one part of it, child nutrition would be another part of it. You know, and that that becomes impossible because you're taxing at 14 percent and spending at 23 percent?

Niall Ferguson: So a major problem here is that the projects of transforming the United States into something more like a European country does imply significant increase in taxation as well as in expenditure. And there are two obstacles to this. One, it's very clear that this would not be timely given the situation that the economy finds itself in. And two, most Americans don't believe that that is going to deliver the kind of improvement that they would like to see in education.

Look how the federal government fares and the programs that it does spend a lot of money on. Health care, social security, I mean, it's already insolvent with its provision through Medicare. This is one of the hugest unfunded liabilities in the world. And the answer that Jeff has to the U.S. problem is let's create an even bigger federal spending program on public education. I mean, it's just not credible, Jeff.

Jeffrey Sachs: Niall, you're confusing so many issues. My point is that if we are going to be decent and competitive, we have to invest in it. That's paying the price of civilization. That costs money. The fact that the United States collects in total revenues at all levels of government right now about 27 percent of national income compared with 35 percent and above in other countries is the gap of decency right now where -

Fareed Zakaria: But it's also the gap you're saying of competitiveness. Now, the path to competitiveness for you is a larger government that spends more, correct?

SACHS: If it invests properly, of course.

Niall Ferguson: You can understand why people might be skeptical about that.

Jeffrey Sachs: I'm talking about investment in education. I'm talking about investment in job skills. I'm talking about investment in science and technology. Talking about investment in 21st century infrastructure. And we've been for 30 years demonizing government. We've been demonizing taxation. We have neglected to understand that a proper economy runs on two pillars, a market and government. And until we come back to that basic level of understanding that we need a mixed economy, not just a market economy, we'll continue to fail.

Niall Ferguson: Well, I'm sure the Chinese are listening to this debate with glee thinking, well, there are still academics in the west who think that the route to salvation is to expand the role of the state because that's certainly not what is happening in China. It is not what is happening in India. It is not what is happening in Brazil. The most dynamic economies in the world today are the ones which are promoting market reforms and reining in the rule of the state, which in those countries grew hypertrophically in the 20th century and that is a big problem in Jeff Sachs' argument.

Jeffrey Sachs: Thank you for the lecture. But the catching up phenomenon is quite different from the problems that the United States or other high income societies face right now, and for us -

Niall Ferguson: The problem is the falling behind phenomenon.

Jeffrey Sachs: - and for us to be able to have high prosperity at the living standards we want, we need training, we need education, we need infrastructure, we need governments that can pay for that.

Niall Ferguson: But you forgot and we need higher progressive taxation on the private sector, because that's the most important part –

Jeffrey Sachs: And we need the rich to pay their way, absolutely. Because they've run away with the prize. And they've run away with the prize –

Niall Ferguson: There's a simplification.

Fareed Zakaria: Unfortunately -

Jeffrey Sachs: That's part of the solution, stop calling it just one thing, Niall.

Fareed Zakaria: All right. I don't think – I think this is one of the rare cases where I was superfluous as a moderator. Jeff Sachs, Niall Ferguson, thank you very much.

Video: Nassim Taleb On Occupy Wall Street

Video after the jump:

No, No, No: Erin Burnett, the Government Bank Bailouts Were Not 'Profitable'

Oh boy.

On location at Occupy Wall Street, CNN's Erin Burnett is perpetuating the myth that government bailouts for banks were profitable for taxpayers.

Here, here, here and here are my previous posts about why this is not true.

In short, it's misleading to claim that the bank, or Wall Street, portion of the government bailouts (called TARP) is profitable without referencing the trillions in other bailouts provided by the Fed, the ongoing support for Fannie Mae and Freddie Mac (which could cost taxpayers trillions), and other taxpayer support which directly and indirectly bailed out Wall Street beyond just TARP. The reason is that the recipients of the government bailouts are intricately connected. Wall Street had (still has?) vast real estate holdings, so the support provided to Fannie/Freddie and the Fed's purchase or mortgage backed securities were second and third bailouts, respectively, for Wall Street on top of TARP.

Erin, it is fallacious to promote a myopic view that the government got its money back and then some on the TARP tranche of the government bailouts.  You need to also look at where taxpayers have not yet received their money back (Fannie/Freddie) or are still exposed (Fed's nearly $3 trillion balance sheet). To do otherwise is to engage in an incomplete, inaccurate and deceptive accounting of the bailouts.

For those interested in more detail line-by-line accounting of the various government bailouts can be viewed here.

Video: Meltdown - Documentary (all 4 parts) on the Financial Crisis

h/t Barry R.

If Not Obama, Who Does Secretary Geithner Take Orders From?

Here's the story about how Treasury Secretary Tim Geithner, perhaps emboldened by his ability to get away with tax evasion, decided in March 2009 to ignore President Obama's directive to dissolve Citibank.

As MIT Professor Simon Johnson and others have pointed out, the most recent financial crisis marked the third time in the last three decades that Citibank has needed a taxpayer financed bailout. In other words, once every 10 years on average Citibank goes bust.

Obama, perhaps aware of this fact, maybe thought it was time to put an end to the joke that Citibank and its lackluster management can stand on its own two feet without government backing. Why didn't Geithner agree with his boss?

Friends of Bob: Summers, Orszag and Geithner

Yves Smith has a theory. Another possibility is that dismantling Citibank would have put an end to the #1 preferred post-government destination for officials looking to cash-in like Robert Rubin, who pocketed hundreds of millions of dollars in compensation as Chairman of Citibank following his position as Treasury Secretary, and Peter Orszag, who left the Obama administration for a similar lucrative position with the megabank.

And what consequences has Geithner suffered for his supposed insubordination? Apparently none based on the fact that Obama purportedly had to beg him to stay on through the 2012 election.

Video: Ethics in Economics

More on this topic here and here.

Video: Banks Should Be Public Utilities

The SEC: Just When You Think You've Run Out of Outrage...

SEC Commissioner Mary Schapiro

Things were starting to look up for the beleaguered-since-Madoff  U.S. Securities and Exchange Commission (SEC) with its spate of successful prosecutions of high-profile insider trading criminals. But for the U.S. stock market cop it continues to be a case of one step forward, four steps back.

Rolling Stone's Matt Taibbi delivers the latest bombshell:

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history. 

It goes without saying that no ordinary law-enforcement agency would willingly destroy its own evidence. In fact, when it comes to garden-variety crooks, more and more police agencies are catching criminals with the aid of large and well-maintained databases.

Much has been made in recent months of the government's glaring failure to police Wall Street; to date, federal and state prosecutors have yet to put a single senior Wall Street executive behind bars for any of the many well-documented crimes related to the financial crisis. Indeed, Flynn's accusations dovetail with a recent series of damaging critiques of the SEC made by reporters, watchdog groups and members of Congress, all of which seem to indicate that top federal regulators spend more time lunching, schmoozing and job-interviewing with Wall Street crooks than they do catching them. As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been "infected with the Goldman mindset from within."

Anyone seen the latest Intrade odds on SEC head Mary Schapiro keeping her job?

Full Taibbi article here. 

Bailing Out Too Big to Fail: Here We Go Again

The sorry state of Bank of America's financial position, which is trading at less than half its book value, may necessitate yet another bailout.

From Bloomberg's Jonathan Weil:

Ask anyone what the most immediate threats to the global financial system are, and the obvious answers would be the European sovereign-debt crisis and the off chance that the U.S. won’t raise its debt ceiling in time to avoid a default. Here’s one to add to the list: the frightening plunge in Bank of America Corp. (BAC)’s stock price. 

At $9.85 a share, down 26 percent this year, Bank of America finished yesterday with a market capitalization of $99.8 billion. That’s an astonishingly low 49 percent of the company’s $205.6 billion book value, or common shareholder equity, as of June 30. As far as the market is concerned, more than half of the company’s book value is bogus, due to overstated assets, understated liabilities, or some combination of the two.

But wasn't Dodd-Frank supposed to prevent us from having to bail out the megabanks again?

Until we embrace comprehensive financial reform, such as well thought through proposals like 'Limited Purpose Banking' outlined by Professor Laurence Kotlikoff, we will continue to be faced with the prospect of bailing-out reckless and/or incompetent Too Big to Fail megabanks.

How to Fix Our Optimism Deficit

Europeans, Japanese, and even rose-colored glasses wearing Americans are suffering from what has been described as an 'optimism deficit'. This rather unthreatening sounding phrase should not be mistaken for an insignificant economic problem.

Optimism fuels all sort of important economic activities, such as entrepreneurship, saving for the future, and social cohesion. It may in fact be the most fundamental immediate challenge facing the developed world today. But with pre-election political gridlock setting in, our leaders are big on rhetoric and short on concrete actionable ideas which can restore confidence.

There is one idea, however, that I believe could make a significant impact on restoring optimism, but before getting to that a brief personal backstory.

Blowing Bubbles

I lived in San Francisco and worked in tech during Dot Com bubble and bust a decade ago, and it taught me a lot of lessons. But perhaps the most important one didn't come until several years afterwards.

Having been away from California for a few years since the burst, I moved back (this time to Southern California) in 2003. To my disbelief I began noticing similarities between the still nascent housing bubble and the one which I had just recently had a front-row vantage. The tech bubble seemed still too fresh in my mind for the kind of speculation on housing that was taking place. While the assets were different (tech stocks vs. real estate), the underlying psychology was eerily familiar.

I did not have the foresight of Michael Burry, Steve Eisman, and the founders of garage startup hedge fund Cornwall Capital to cash-in on this observation. Instead I simply ignored peer pressure and pesky real estate salespeople who warned me that if I didn't purchase a home now I would be "priced out of the market forever". Another memorable ribbing from that era was the "you're throwing your money down the drain" by renting year-after-year. When the 2008 financial crisis hit it made the Tech Bubble look like a small financial radar blip.

Forget-Me-Nots

Witnessing two significant financial crashes in such close proximity to each other left an indelible lesson, which was to never underestimate how quickly a large number of people can forget a traumatic financial event.

This month marks the four-year anniversary from what was arguably the canary in the coal mine moment, the July 2007 collapse of two Bear Stearns hedge funds, both of which were heavily invested in mortgage securities. Bear Stearns itself blew-up approximately nine months later, and it would take until September 2008 for the crisis to reach its nadir with the simultaneous implosion of Lehman Brothers, AIG, Merrill Lynch, and a bevy of other financial firms.

The case of Citigroup bears special mention. Its collapse and bailout marked the third time in last quarter-century that the firm needed to be rescued by the government (the other two instances being the 1982 Latin America debt crisis and the late 1980s bust in commercial real estate which sparked the S&L crisis). Yes, that's right, about once every 8 years on average Citibank blows-up and needs a taxpayer funded bailout. If an inglorious banking prize equivalent to baseball's golden sombrero doesn't already exist then one should be created and promptly awarded to Citi!

While Rogoff and Reinhart caution against the following type of thinking, I do suspect that this time is different from 2003-2004. I don't believe as many people have forgotten the financial crisis as did the dot com bust, and not just because the 2008 crisis was much more spectacular in its magnitude. There are two big differences between then and now:

1. Protracted high unemployment, which in the U.S. is at 9.2%, and in places like Spain is over 20%.

2. The sovereign debt crisis that is hitting not just European countries such as Greece, but is also hammering away at confidence in the U.S. with daily headlines about nearing the debt ceiling.

A sense of widespread and growing economic unease can be seen in recent polling data:

A New York Times/CBS News poll finds that 39 percent of respondents believe “the current economic downturn is part of a long-term permanent decline and the economy will never fully recover.” (in October, only 28 percent of people believed the U.S. economy was in permanent decline -- marking an 11-point increase between now and then) 

The survey is only one of a recent spate indicating widespread distress over the state of the economy. On June 8, a CNN poll found that 48 percent of Americans believe another Great Depression is either very likely or somewhat likely.

The 2008 financial crisis was a severe blow to economic confidence and optimism, by far the biggest since the Great Depression. The most important and personal asset for the vast majority is housing, which lost one-third of its value from the peak and recently began a double dip. This combined with high unemployment and the suffocation of too much debt is at the heart of the current economic unease.

What Did Taxpayers Receive in Exchange for Bailing-out Banks?

The fundamental instability of the financial system was laid bare for all to see during the 2008 crisis. The public also got a glimpse of just how dangerous Too Big to Fail financial institutions are as governments around the world rushed to bailout megabanks and firms like AIG with taxpayer money. What did taxpayers get in exchange? As much as Paul Volcker, Adair Turner, Sheila Bair, and other well meaning and respected technocrats would like us to believe that Dodd-Frank, Basel III, etc. repaired the foundational cracks, the ongoing sovereign debt crisis casts serious doubts on these claims.

Today, people aren't wondering whether the next proverbial shoe will drop. People are instead bracing for when the next economic tsunami will make landfall. Will it be this week with Greece, end of this month with the U.S. debt ceiling, or sometime around the next major elections, when historically (and peculiarly) financial crisis seem to appear? The exact timing is uncertain, but there is broad understanding that another major financial crisis will strike, and perhaps soon.

This sense of pending chaos has left many people in a state of economic paralysis and dealt a collective blow to confidence and optimism. As Austin Powers would put it, we've lost our economic mojo.

A Key to Fixing Our Optimism Deficit

A big key to restoring economic optimism is the establishment of a sturdy foundation for the financial system.

Our current financial system is opaque and not well understood by the general public or many experts, such as macro economists, almost all of which failed to see the crisis coming. Apocalyptic terms are often employed when discussing it, and a fear that it may come crashing down at any moment feeds existential worry and creates a drag on productive economic activity. For example, concern of another crash inhibits lending and investment, reduces entrepreneurial risk taking, and may be responsible for the stockpiling of cash we're seeing at many large corporations, like Apple which is sitting on approximately $60 billion.

How best to provide the financial system with a rock solid foundation? Is simply restoring Glass-Steagall enough? I don't think so.

The most far-reaching, comprehensive and achievable plan is the one outlined by Professor Laurence Kotlikoff, which he calls Limited-Purpose Banking. I believe that title may in fact do a disservice to his well thought through ideas, which go far beyond banking and include insurance and other areas of the financial system (e.g., regulatory consolidation of the 120 government agencies currently charged with supervising various elements of the financial system).

Professor Kotlikoff has written a book on his ideas, which you can find in the Good Books and Films section of the right-side column of this blog, titled Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking (the Stewart reference is to the thespian's role as the likeable community banker, George Bailey, in It's a Wonderful Life). You can listen to an excellent talk he gave at the London School of Economics here. His proposal has generated bi-partisan political, regulatory and intellectual support around the world. Mervyn King of the Bank of England has been one of its foremost champions.

Without going into all the technical details, Limited-Purpose Banking basically removes leverage from the financial system and makes the entire system more like mutual funds, which did not collapse or suffer from fraud during the recent financial crisis.

Here are some of the promises of Limited-Purpose Banking:

• We’ll never have another financial collapse.
• We’ll never see a run on banks ever again. 
• We’ll never see insurance companies insuring the uninsurable. 
• We’ll get rid of all the con jobs underlying the current financial system. 
• There will be no more insider rating deals, liar loans, director sweetheart deals, bonuses which amount to corporate theft, bribing of Congress. 

In short, we’ll have a financial system that’s honest and that we can trust. The financial plague will be cured, once and for all.

Interview with Larry Kotlikoff Author of "Jimmy Stewart Is Dead" from Daniela Guernica on Vimeo.

To bring back economic optimism we must build a new, more stable foundation for economic activity. This foundation can be created with a new financial system like the one proposed by Professor Kotlikoff, who is quite optimistic about the likelihood that his ideas will ultimately be implemented. It may take one more financial crisis and bailout of the banks to get the public and politicians on board with this type of reform, but I agree with Professor Kotlikoff that something along the lines of the reforms he's outlined will happen eventually.

FDIC's Bair: "They Should Have Let Bear Stearns Fail"

Today's must-read interview is with just-departed FDIC Chairwoman Sheila Bair, who sets the record straight on:

• where Paulson, Bernanke, and Geithner went wrong (e.g., bailing out Bear Stearns)
• the disconnect between President Obama's 'heart' and the people he chose for his economic team 
• what the future holds for Too Big (or more accurately 'Too Bigger') to Fail

Bair's argument on letting Bear fail is that it would have sent a strong signal to the larger, more systemically integrated firms, like Lehman, that they should raise capital because the government was not going to bail out everyone. Whether Lehman could have in fact raised sufficient capital in the wake of Bear being allowed to fail is a great counterfactual question. 

One has the impression from reading Sorkin's Too Big to Fail that Dick Fuld and Co. either expected Paulson to bail Lehman out, or that the storm would pass soon enough for the prices of Lehman's assets to recover. Paulson purportedly appealed directly to Fuld to raise capital on numerous occassions in 2008. However, given the Federal Reserve's bailout of Bear, Fuld's skepticism that the systemically more important Lehman would be allowed to go under is understandable. If Bear had been allowed to fail Fuld likely would have come away with an entirely different interpretation of how things might play out should his back get pushed up against the wall, as it did during that fateful September of almost three years ago.

The interview also makes reference to former CFTC head Brooksley Born. For anyone who hasn't watched it already I highly recommend Frontline's profile of her battle with Greenspan, Rubin and Summers on the regulation of derivatives, a Wall Street product which Warren Buffet has called "financial weapons of mass destruction".

The Greatest Trick Lenders Ever Pulled?

A pretty good candidate in my mind was substituting the term 'credit' for 'debt'.

Not all too long ago, 'debt' was clearly understood as something that, simply put, was bad.

But 'credit'? Oh boy, give me some of that!

There is a lot more to the credit/debt bubble than rebranding. But it's interesting to observe the different terms used for the same or like things, and the effect such differences can have on adoption and/or support. Some other examples:

• 'Orderly resolutions' vs. 'bailouts'
• 'Quantitative easing' vs. 'printing money'
• 'Macroprudential regulation' vs. 'financial repression'
• 'Department of Defense' vs. 'Department of War'

The observation on swapping 'debt' for 'credit' and other interesting thoughts from this talk and Q&A with novelist (and non-economist) John Lanchester.

Video: 60 Minutes on High Frequency Computerized Trading

In Greece, Locals Rule

Harvard Professor Dani Rodrik clearly spells out the bottom line on Greece:

History suggests...when the demands of financial markets and foreign creditors clash with those of domestic workers, pensioners, and the middle class, it is usually the locals who have the last say.

Rodrik's full post here, and video you won't see on most main stream media below.

The Flaw Movie Trailer

The Guardian reviews and compares this film to Charle's Ferguson's Academy Award winning Inside Job here.

Video: Carl Icahn on the Next Financial Collapse

Your PhD in Managing Money

(click to enlarge)

Full article here.