Michael Lewis: I Think We're in for Another Day of Reckoning Down the Road
By Heather Monday Jun 08, 2009 5:00pm
Fareed Zakaria talked to author of Liars Poker, Michael Lewis, about what the future is for Wall Street and the economy, and Lewis is not optomistic due to the revolving door between our government and the financial sector.
ZAKARIA: And we are back with Michael Lewis.
Michael, there are sort of two views on the future of Wall Street. One is, this whole game is over. And sort of, to a certain extent, you've been expressing it a little bit, that, you know, this is a 30-year boom. We're going to look back it the way we did the 1920s, maybe the 1890s.
But there's another view that says there are so many smart people out there, and they are so hungry, and they desperately want to find ways to make money, that you're going to actually see new and interesting ways that these firms will either produce money, or there'll be a whole series of smaller firms -- you know, risk-taking firms like hedge funds on the one side, much more staid banks on the other.
What do you think? What does your gut tell you the future of Wall Street is going to look like?
LEWIS: I think that we are in for another day of reckoning down the road. I just don't know when it is.
I think that they haven't even properly evaluated the institutions. They haven't been honest about what these institutions have on their books. They've had phony stress tests.
So, we're in a kind of, I think, right now, in a period where there's a false sense that it's over, that the crisis is passed. I don't think the crisis is passed.
Now, they haven't all deleveraged. Morgan Stanley did, to its chagrin. But everybody else is still running these huge -- a huge amount of leverage. But that's going to change. I think the general sense that this sort of risk-taking should not take place in a public corporation, especially one that's too big to fail, will express itself in regulation that will prevent it from happening.
But you're right. There are all these smart people. And they're used to making huge sums of money. And it's kind of hard to believe that that will just end.
I don't think it will just end. I think it will find a different expression. I think that what you'll see is hedge funds will become more and more interesting.
ZAKARIA: But what happens to these storied...
LEWIS: These big institutions.
ZAKARIA: ... these massive, massive banks? I mean, they used to define American power in a way, these massive, multinational banks that were all headquartered in New York.
LEWIS: I think they steadily become much more boring. I think they steadily attract a less a caliber people to work for them, and they pay less. They pay less.
I think that -- it's hard to see now, because what's odd -- one of the things that's odd about the current situation is that the people who created the problem are so powerful in deciding what the solution to the problem is going to be. There is a great tradition on Wall Street of making a fortune, creating a mess, and then making a fortune cleaning it up. But to do it on this scale is breathtaking to me.
And it is amazing to me the degree to which, say, Goldman Sachs is intertwined with the Treasury, and how they're -- there don't seem to be any independent voices in the thick of the decision-making. The decision-making is all being done by people who one way or another might expect to make a lot of money from Goldman Sachs in the future.
ZAKARIA: You talked about that in an op-ed in the "New York Times." Describe that amazing revolving door between the SEC and the investment banks.
LEWIS: Well, that's the -- that's sort of the down market version. But the directors of the last three -- let's see, three of the last four or four of the last five directors of enforcement of the SEC work for big Wall Street banks now.
ZAKARIA: And expected -- right. And...
LEWIS: And you can just assume, I think, that if you're a prominent person at the SEC, your exit strategy is to get a lot of money from a Wall Street firm. And nobody says anything about it. That's the amazing thing.
It's not even thought scandalous. It's just thought normal. It's like a natural career -- a step in a financial career. Regulate...
ZAKARIA: And regulators, of course -- you are highly unlikely to enforce in a very punitive manner any of the SEC's mandates, if your hope is the next day, you know, to leave and get a job.
LEWIS: You're not going to want to not get along with the head of Goldman Sachs. That's absolutely right. You're not going to -- there's a limit to how much trouble you're going to be willing to cause.
I think that only partly explains the SEC's impotence. I mean, the truth is also that an awful lot of what happened to create this crisis wasn't even illegal.
ZAKARIA: Right.
LEWIS: So, there wasn't anything the SEC could have done about it.
So, on a grander scale, if I'm Tim Geithner and I'm the secretary of the treasury, what do you think he's going to do when he stops being secretary of the treasury? His natural next step is go work in the financial sector. I don't think he's actually thinking, "I've got to be nice to the people on Wall Street, because they're going to make me rich on the back end of it."
But I think it can't help but influence his behavior, that that option even is there.
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Revolving door is an understatement. How about complete capture?
a bunch of other terrifying links here
especially apropos:
Is Larry Summers Taking Kickbacks From the Banks He's Bailing Out?
Mark Ames, AlterNet here
Goldman Names Ex-S.E.C. Chief as Adviser NYT blogs here
and
By Eliot Spitzer here
Bank-Run Dark Pools Grabbing Liquidity from Exchanges
Reuters here
and at Zero Hedge, Goldman Now Dominating Dark Pool Trading here
The destruction of Eliot Spitzer by abusing the Patriot Act is still one of the most ignored scams of the Bush era - by no means one of it's worst.
The timing of it is too incredible to brush off as coincidence.
•February 14, 2008 · New York Governor Eliot Spitzer has accused the Bush administration of preventing states from helping consumers avoid predatory lending practices.
• March 10, 2008 · Officials Say Spitzer Is 'Client 9' in a Federal Complaint Against the Prostitution Ring
Yet Mark Foley is still allowed to keep his job.
Foley resigned in September of '06, just over a month before the midterm elections.
Maybe you're thinking Senators David Vitter and Larry Craig?
Sorry for the error.
I cocked something up in a comment earlier today- and I don't have the qualifier in my handle that you do. :D
in front of all our faces and few seem to get it.
The FED's own BORROW chart
http://research.stlouisfed.org/fred2/series/b...
This is the stimulus, TARP, and deficit spending up the wazoo. This is what Obama is calling a short term problem. Note the time line, goes all the way back to the roaring 20's, through the great depression, through WWII, through the recession of the 70's, the near collapse in 82, the S&L scandal in 85, Enron, Worldcom, Tyco, and the dob bomb's of the 90's, 9/11, and notice the worst of these barely visibly register compared to what we have done now.
A parabolic rise unlike any we have seen in our life time, a home sick Angel ascending to heaven. Parabolic rises are always followed by a parabolic falls. Obama's economic plan is no better than the neo-nuts, it's spending borrowed money pure and simple and we cannot repay it and China knows it. The rug will get pulled out from under us, if Geithner is getting laughed at by econ students in China imagine what the old men running the country are thinking? They are making plans to get away from the dollar while they tell us they have faith in us, YANK rug pulled.
People it's important Obama knows those of us who voted for him are not happy with the borrowing stimulus "create government work" non-sense. It's a snake eating itself. I work with certain branches of the government, all they are doing is creating paper pushers, often clueless, that is not going to help our exportable productive capacity.
It don't get much better then that cozy clique.
Fire Sommers and Geithner! Hire Krugman and this guy.
That's what it is!
How did we ever get the idea that we needed a thief to watch the thieves? I don't say set a thief to catch a thief because long hence we stopped trying to catch anyone.
We need salted prosecuters in the watchdog agencies and taking point in congressional investigations.
Elected officials are too often posturing and positioning when they should be cornering criminals.
How does one corner themselve?
"The great thing about being broke is no matter how much the economy sucks you're still broke."
That said, the day of reckoning is already among us for so many of us. The fact that things will only be getting worse is something we're used to after the past 30 years of stagnant wages, widening wealth/poverty divide and all the other fun stuff that are cause and effect of this. For most Americans things have been getting worse for a long time and only now that it's so high reaching (and affecting the high-roller's portfolios) is this considered a problem.
If a tree falls in the forest and only crushes "little people," does anyone notice?
Unless and until we get some kind of viable manufacturing base back into our economy there is nothing there to back a recovery. Anything else will just be window dressing on broken windows.
Tired of speculators... little more than Mad Money with a kind facade. Not that I'm not WORRIED, but they've been SO wrong SO many times I feel like we are being told to be afraid all the time.
What has changed since the collapse? We've infused trillions of dollars into the private sector to prop up their bottom line so that stocks can go back up. Other than that, nothing serious has changed. No serious regulations, no serious restructuring... It's just business as usual. Only this time, much fewer American's have credit so we can't go shopping as much as we used to. Therefore a consumer-based economy is being propped up in hopes that consumers will magically appear.
It may be speculation, but I'd be hard pressed to feel optimistic about business-as-usual making things better.
we haven't really had a first day of reckoning. Everything still works. I flip a switch, a light comes on, I turn a faucet handle and I get hot or cold running water.
Police still chase criminals and firemen still put out fires.
When some of THAT stops happening, that's when reckoning begins.
Hasn't happened. Can't have another, until we've had a first.
Interesting take.
But if this hasn't been a reckoning, then all I can say is "holy s**t and look out" when it does arrive!
absolutely correct.
Of course there's more to come.
Did anyone ever think that none of this was supposed to happen b4 the crooks left.
and I'll say it again; right now >> we are so-oo-oo screwed!
The folks who've been running our world for the past bunch of decades have successfully destroyed the manufacturing base, the education system, and have corrupted government institutions to the point where they are not recognizable.
The big money guys - the corporations/central bankers - call the shots now, and those in the government kowtow. I believe that's sometimes called Fascism. These are men who are so short-sighted, they think they'll be just fine with all their 'money and stuff' when the sh*t hits the fan. If the underclasses cannot survive because there are no jobs, no education, no health care, no decent housing.... who will provide them with the goods and services they're accustomed to consuming?
After watching "Smartest Man in the Room" I say let all the banks that are too big fail. Those greedy motherfuckers will never have enough and won't ever stop being corrupt. That movie was a real eye opener.
They are going to figure out a way to make money. That's the problem. We created so much money from pushing around money. It didn't represent any real wealth though, matter and energy, so it was bound to tumble. They likely will try to outsmart the laws of thermodynamics again, and fail miserably at it.
unless we bring back most of the outsourced jobs...we are doomed
if in 6 months, i am still talking to india or the philipines for tech support or customer service...there is no hope for america
pack it in
GPS is appointment TV at my house, just about the only Sunday political show that I give a damn about.
Murphy's law of greed is there is no such thing as enough, the profit is never big enough, the executive comp is never enough, the bonus is never enough, there will never be enough. That's all I could think about when I was listening to Lewis, will any corporation ever making a case for sustainability over quarterly profit?
The whole flaw in the health care debate is the presumption that any for-profit player can be trusted to go along with ANYTHING that's going to get in to their profits? Put the public option on a trigger that's at the end of the long finger? Does anyone seriously imagine that the gun works? Does anyone else remember that these are the same people who killed HillaryCare and then promised Congress and WeThePeople that if we would just leave them alone, they would come up with the cost-cutting measures we so desperately needed. Where have they been? It's been 15 years. I submit that if the "market" could produce cost savings, it would have done so by now. When Karen Ignagni, health insurance industry queen, testified in front of the Finance committee, she literally whined that people have never been required to buy health insurance, that that's the only way it would ever be profitable to make those cost-cutting measures. Now she didn't exactly say it THAT way, but that's sure as hell what I heard between the lines.
Wild gluttony and greed.
Such insight! I'm so glad the public has people watching their back.
Just how much regulation has been passed to address what happened?
Just how much legisltation has been passed to punish companies that offshore jobs?
Just how much legislation has been passed to punish companies that shelter funds offshore?
Just how much legislation has been passed to protect American jobs and to make it easier for workers to form unions?
Just how much legislation has been passed to protect American wages?
Just how much legislation has been passed to protect the American standard of living?
Just how much legislation has been passed to protect the health and lives of Americans?
Just askin'.
If the answer to those questions is "not much", then obviously a true day of reckoning is still needed. Americans have not suffered enough. When they have, they will then rise up and defend what is theirs.
Personally, I hope all American business and the American economy collapse. I am looking forward to a devalued dollar, hyperinflation and pain and suffering for all.
THEN, we will actually get some real action.
the reality: http://www.youtube.com/watch?v=2EnUuM4xXBA
He's little bit late to that conclusion....Schiff,Celente and a few others have been saying for months we have not even hit the tip of the iceberg yet. Between the bond market going next, hyperinflation,commercial real estate,the bottom has not fallen yet. The rally we have right now is a false bear market rally, it's only to get the rest of the suckers to throw in their money into the market and take what's left of their 401k,pensions. We are witnessing pretty much what happened to Argentina in 2003 happening to America in 2009, they still have not recovered. I guess those leeches and parasites used what happened in Argentina as a manual guide on how to rob the poor and middle class without a whimper and do it better. Krugman is a fool couldn't tell you the difference between Austrian economics and Keynes style economics. For someone with a Nobel prize he's not that bright, then again they give them to just about anyone who pushes an agenda nowadays so i guess it's well deserved.
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