Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Friday, March 20, 2009


If you don't know Matt Taibbi, you should get acquainted with him. Everything he writes is great (I especially enjoyed his recent takedown of Tom Friedman) but you should really read his new piece in Rolling Stone on the financial crisis. Remember recently when LTG said the following right here on this blog?

I choked a bit on my latte. Are you shi*ting me? When did bankers become alpha males? Bankers were always in popular lore buttoned-down milquetoast types who wouldn't loan you five bucks for a sandwich unless you proved you already had a ten in your pocket. The kind who would give you a $20 savings bond for your 10th birthday, or weigh bananas at the store before buying them. But of course, alpha male is what happened to the banking industry. A friend in NYC (a lawyer) reported that he used to listen to 25 year olds deriding him for doing "women's work" (preparing the legal paper for their deals). In my world, that talk would get you fired, not get you a bonus.

These same "alpha male" attitudes probably explain the big bonuses we are seeing being paid to wall street folks even as they take taxpayer money to cover for their massive collective screwups.
Well, Taibbi feels the same way:
The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror.
Excerpting doesn't do it justice -- go read the whole thing.


The Law Talking Guy said...

I'm glad Taibbi highlights the role that Senator Phil Gramm played in all this. He was an economics professor by trade, and drank the Milton Friedman koolaid pretty hard. Others thought he was a genius, when he was just an ideologue. When I rail about economics departments, I often have a picture of Phil Gramm in mind.

Raised By Republicans said...

Phil Graham got his Phd in economics from the U. of Georgia and was an econ professor at Texas A&M before oil money funded that university's rise in academic quality (outside of ag and engineering).

I guess what I am saying is that if LTG uses Phil Graham as a representative member of the profession he is in error. Graham was a so-so economist at a so-so department with a so-so quality PhD. And at the same time, both his so-so Phd and his so-so department are not exactly known as either academic power houses or bastions of free thinking.

Phil Graham isn't a typical economist. He's a caricature of a mediocre economist.

The Law Talking Guy said...

I would wager that mediocre economists are typical. That is true of every profession, pretty much.

Raised By Republicans said...

What I object to, LTG, is your straw man approach to the entire field of economics. You seem to frequently take the position that "Friedman's fan club are morons therefore all economics research is meaningless."

You never seem to consider the possibility that the value of a field of research may not be best assessed by focussing on it's mediocre members. If you look at the Phil Graham's of the world you get a much different view of economics research than you do if you look at the list of Nobel Laureates in econ.

Imagine if we judged the value of legal thinking by focussing only on the Santa Clara School of Law's club of the Federalist Society or something. If we only focussed on them and ignored the prominent legal scholars who oppose their views, we would have a very jaundiced view of the law as a profession indeed.

Raised By Republicans said...

"object to" is too strong a term. I mean "disagree with." Same meaning different tone.

Dr. Strangelove said...

Getting back to the original post, I very much enjoyed Taibbi's article. I understand Obama's main focus is the economy, but he has promised to institute real regulatory reforms of the financial sector, and I hope he follows through.

I just wanted to note that we should take care not to confuse the "alpha male" with the "jackass." I think perhaps it was precisely because the bankers were largely the "buttoned-down milquetoast types" LTG spoke of that permitted the jackasses to run wild. The real alpha males weren't in the building.

Raised By Republicans said...

I think part of the problem is the replacement of buttoned down accountanting and finance PhDs with frat boys with MBAs.

USwest said...

Along the same lines, I was home sick yesterday, so I had time to watch Jon Stewart take CNBC's Cramer apart. I swear Cramer was told by CNBC "just go and take it ad be cute."

I think Jon hits it dead on when he says that these Wall Street people created two markets. One where we were all told to leave our 401K money in the market for the long term, not to move it around. And then another market where they took that money and used it screw around with while looking at us like patsies.

Since I may end up home sick again today, I may spend some time considering my position on the need for a central bank.

As for Taibbi, thanks for introducing him to me. He’s great! His take on Tom Freidman is dead on. I am amazed that he didn’t point out that maybe it is Friedman who is Flat and hot. He he.

USwest said...

The best line in the whole article for me is at the very end.

"By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. "

Are these the final vestiges of the Bush era? Or are we in for another round?

Dr. Strangelove said...

I liked the article too. But I am going to quibble with that last line... I think the vast majority of Americans always have been "non-participants in their own political future," usually by sheer apathy. And I think most of the crises facing us can only be solved by those fluent in a specific language. Is the financial mess really any more complicated than the health care system, or global climate change?

Like it or not--and most folks don't like it--the financial sector is the circulatory system for the entire economy. And I really hate to say it, but much of the money we're giving back to the financial institutions is money they created in the first place. The richest 1% of Americans (those earning over $400,000 annually) pay 40% of all Federal income taxes. The top 10% pay over 70%. Meanwhile the bottom half of the population pay less than 3% of the total. The best way to protect government income is to protect the rich. Just saying.

Raised By Republicans said...

Of course the top 10% pay over 70% of the taxes! They own over 70% of the wealth! We tax dollars not people.

Dr. Strangelove said...

"We tax dollars not people."

Wow! I had always wondered why they called it an "income" tax! Thanks RbR!!

USwest said...

Oh, Dr. S, you disappoint me. Tell me you were being provocative on purpose. Tell me you really do see the reality thorugh those numbers.

Let's not forget that many people pay more in pay roll taxes than income tax. I watch a good 40% of my paycheck disappear for state and federal Income Tax, SSI, Medicare, and the like. That is before you reduce my take home further with health insurance and retirement accounts. So offering a payroll holiday may not be such a bad idea.

The rich don't contribute income to pay roll after 80K. So focuing on income tax is a bit short sighted. And even when you look at income taxes, you should consider the proportions that people pay. Asking Bill Gates to give up 36% of his *income* is a much smaller sacrifice than asking me to give up 17% of mine. And what is *income* really? For me, it is my salary and a tiny bit of interest I get annually for my CDs.

The wealthy don't live off their income. They have other revenue streams that are not classified as income. Their acutal income is secondary to their invesment income which is taxed a much lower rates.

So while I watch my cousin with four children and low wage job and a substitute teacher husband buy her second house while collecting welfare, I get pissed. As a middle class person, trying to buy my first house, I am squeezed both ways.

I've said it before: We need tax reform in this country. And that is the one thing that the Obama adminsitration has not disucssed in regards to this crisis. We need to move away from income tax (which is not supported by a single law and was introduced only after they implemented a Federal Reserve) and focus more on consumption taxes. Those ht everyone a bit more fairly.

Dr. Strangelove said...

Oh dear, now I've disappointed USWest. Well, let me try to get out the doghouse a bit... Yes, I was indeed being provocative on purpose. Since the Reagan years I have been watching closely--and warning loudly--about the growing income inequality in this country. I absolutely believe that the middle class are squeezed and hammered by the current tax code, which desperately needs reform. I totally agree. The overall tax code is regressive and hurts millionaires a lot less than it hurts the rest of us.

(I am curious, however, about your remarks in the last paragraph that seem to suggest the income tax lacks a firm legal basis and is somehow less equitable than a sales tax?? I presume you, also, were just being deliberately provocative.)

The question I wanted to poke at with my provocative remarks was actually, "What really is this thing we call money?" How much of the "gains" and "losses" in the financial represent tangible increases and decreases in well-being, and how much are really just numbers on a page? The money you and I pony up every April 15th is real money, because we had to clock precious hours of labor to earn it and we must forgo consumption of real goods and services to give Caesar his due. This is not so with the Wall Street financial sector. The trillions of dollars they create (note: create) by buying and selling this alphabet soup of investment instruments--represents only arbitrage, not "sweat equity." The balance sheets represent theoretical prices that these assets could receive on the market, not tangible values (we had a discussion of "mark to market" accounting at some point, I believe...) Thus, when all that money got lost with the collapse of Lehman brothers, once could argue a lot of it did not exist in the first place.

What did unquestionably exist are the limousines, the bottles of Cristal, the thousand-dollar chocolate sundaes, and all the other stuff that the upper crust bought with their huge salaries. And they are still getting those salaries, while the middle class is getting pink slips, which is what feels so wrong.

So I guess what I'm saying is, when we look at the $1 trillion or so being given as bailouts to Wall Street by the Federal Reserve and the Treasury Department, the "other half" of the country--the people who are losing their jobs, the folks in the lower 50% of the income bracket--they actually only paid about 3% of that money. Most of it was just numbers on the page, created by Wall Street, paid to the Feds, and now returned--but the cost is not what it appears to be. We are focusing on the wrong thing. Rather than opposing the bailouts--which, sadly, really are necessary to get that all-important shell-game moving again--we should be asking, "What is the government doing for us?" This is why I support Obama's budget strongly. The focus should be on the tangible benefits provided by the government in terms of jobs, health care, education, etc. That's what matters. The bailouts are a side-show of shadow puppets that are a lot less real.

USWest said...

Wheww! I am relieved, Dr. S.

In regards to my comments on the legal basis of income taxes, I was being provocative.

There are those fringe voices out there who argue that the 16th Amendment, which is the final firm footing for the estabilishment of an income tax, was never properly ratified. You can go look up their arguements, but needless to say, the courst have ruled such arguements to be frivilous and unfounded.

My arguement against our current tax system is two fold. For starters, it is so complex that it is not easily understood by the common pepople. Don't we generally accept in this country that one of the requirements of law is that people can understand it so as to avoid violating it? Our tax laws lack transperancy. Secondly, the combination of income taxes and payroll taxes are discriminatory in nature. As the tax code is currently constructed, the number of right-offs and exepmtions allowed means that some people end up paying substanitally more than they should while others pay substantially less depending on how much tax advice they can afford. The upper classes can afford tax attornies, financal planners and the like to shield or recharacterize income. The middle and lower classes do not have access to such guidance. Even those who are supposed to get good gudiance manage to screw up, as we have seen with Obama's cabinet troubles.

The current tax code breeds inequality and wealth gaps. It encourages fraud and cheating. Congress has tried to address this by creating the Alternative Minimum Tax. However, we know well the problems with this approach.

So I am after a clear cut way to bring some balance and fairness into the system. I am not big on flat taxes. But I am willing to entertain consumption taxes. I know, know, they say those hit the poor harder and have the potential to raise inflation. But there are also advantages.

You can choose what to tax and what to exempt easily. You can also choose in many instances whether or not to consume. Adding small consumption taxes to things like energy or petrol use can add up to big revenues for the government while encouraging renewable energy and conservation. You could say, add a .02% tax on renewable energy while charging .04% on non-renewables.

We do this already with bottles and cans. And you can get money back if you recycle them. So you can set up consumption taxes that benefit everyone a lot more than straight income taxes.

Another proposal would be to eliminate payroll exemptions. Why should people have to stop paying SSI for instance, after reaching a set cap of income? Wouldn't making everyone pay ease the burden on society?

I am not being bitter here. I am getting a tax return this year. But the mechanations people use to shelter money are out of hand. And the Reagan trickle down method has failed miserably.

Raised By Republicans said...

So we agree that when Dr. S. pointed referred to that old conservative line of "the rich pay all the taxes" it is worth remembering that they have all the money so OF COURSE they pay all the taxes?

Dr. Strangelove said...

Did you really think I was unaware of the most basic function of the income tax, RbR? Did you really believe I had suddenly forgotten about the terrible inequality in wealth in this country, despite having blogged about it repeatedly? Did you truly imagine your pithy response about "taxing dollars, not people" added anything of value to the conversation?

One of the risks of publicly reminding someone about the bleeding obvious (something about which "OF COURSE" may be cheerfully written in all caps...) is that such a reminder may well be taken as an insult. Especially when the aforementioned reminder is decorated with lots of exclamation points. Especially when it is the only response.

My comment was poorly written, more than a little off-topic, and cited no sources--those are legitimate complaints. But I think I deserve a little more credit than to be scolded as though I had naively fallen for the oldest conservative humbug in the book. I don't like being treated like an idiot, and I know for damned sure you don't like it either.

USwest said...

Dr. S, I was rereading a your comments about "what is money"? You make a good point. You say, "when all that money got lost with the collapse of Lehman brothers, one could argue a lot of it did not exist in the first place".

This is completely true. In the same line, you can argue that when someone "lost" money in their retirement account, they didn't loose real money until the losses cut into their initial contributions. This is true of housing values as well. A house only represents "real" money when you buy it and sell it. (Perhaps when you re-fi?) My mother could say she lost $100K because the value of her house dropped. But did she really? Most of the wealth in this country was fictional. I have said this many times. When your wealth is based on credit, in the end, it isn't real. You are getting to the root of having a fiat currency that isn't backed by anything but good faith.

For all the talk about the suffering of Americans who are loosing their jobs and homes, there are a good number of us who are holding up rather well. The reason being that we have real money in the bank. I feel somewhat smug about that, but on the other hand, it is also because I didn't have a enough real money to jump into investment speculation.