Rhinocrisy

This is the video of the year. Spread it:

Via Matt Taibbi.

J. Schwarz over at A Tiny Revolution points us to a 1999 New York Times article on the repeal of a portion of the Glass-Steagall Act of 1933, by the Gramm-Leach-Bliley Act, specifically the portion that prevents banks from offering both savings and investment services. For those more cognizant than I this is probably old hat; you others playing catch-up, like me, might want to read this article by former World Bank economist and Nobel Prize winner Joseph Stiglitz, where he attributes the current mess to five pieces, including the passage of the Gramm-Leach-Bliley act, legalizing maneuvers and consolidation between banks and investment houses that had already occurred (illegally), such as the merger of Travelers Group and Citibank to make Citigroup:

The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking.

Of course, once you’ve let the bull out of the paddock, it’s not going to come back in willingly…

UPDATE: See also this excellent Matt Taibbi article documenting this mess with AIG as a case-study.

Yes, it’s true. I’ve thought about it, and after doing some math, I decided that we should bail out the auto industry. This is the math:

700/35 = 20

I’m not a big fan of Detroit. They make big, badly-engineered cars designed to fall apart quickly. They had a program of selling larger and larger cars to the American market over the past fifteen years.^* But they do actually MAKE things.

Remember how, in the 1990s, economists told us there was a “new economy”, and from now on we would make our bread from lines of code, “intellectual property” and cunning manipulations of people’s psychological states? Remember how they slowly implemented a program of shifting our “old economy”, based on building stuff with our hands, to other countries? And remember how that turned out to be a load of hooey, and it all fell apart a few years later? Well, now it’s time to shore up the sagging remnants of our manufacturing sector and get back to using our hands again.

It’s somewhat mysterious why there’s so much nervous dry-washing and fidgeting over this prospective bailout. It can’t be the money - we spend the same quantity in Iraq in three months, and we’re giving away twenty times that amount to the financial industry, which hasn’t exactly proved itself capable of handling money correctly. But of course in that case, we’re providing liquidity, the all-important hydraulic fluid which keeps this fabulous capitalist golem moving and flailing. Never mind that the valves and flanges have all burst, and there’s really nowhere for that precious fluid to go except to drain onto the ground. There’s very little point disbursing funds when you don’t have a clue what to invest them in, because all the pieces of the economy that actually produce goods and services - rather than uselessly moving money around - are in tatters. The act of bailing out the financial sector is comparable to a desperate Rabbi Loew operating his golem by standing behind it and repositioning the limbs as necessary. The illusion is gone - it’s not a glorious automaton, it’s not a magical engine driven by the spark of the divine word. It’s just a dead piece of clay. We’re better off coming out from behind the machine and doing the work ourselves - fix what we broke. Let the golem return to dust.

I have little faith that the Big Three will make good use of the money. And perhaps it would be wisdom to let them be dashed to pieces against the rocks of their own failed vision. But I’m more inclined to say that right now we should be focusing on keeping our heads above water. We posted half a million jobs lost in November. And as a great man once said^†, people have got to put food on their families.

^* Culminating in the opening of a Truck-a-saurus dealership down the street from me a few years ago - the flames kept me awake at night and the fumes gave me black lung.

^† Probably right before he fell off a Segway.