Without the laws that force all parties to be honest, instead of just accepting lies, capital would never move, just like lawsuits and trials clog up the judicial system. Because of discovery, motions, witnesses, etc – which is exactly how lawyers got such a ridiculous piece of the pie in general.

Without honest information available to all, then only safe information is available to those who have the resources to obtain safe information.

PL: If you’re not doing that, you might be better off putting your money into a hyper-safe blend of investments. If you’re a German bank, backed by the state, no less, you should be performing the necessary due diligence.

PL: Volatility in a free market = Gains to the shrewd. Volatility created by fear of what intervention the govt might take = All the money moves offshore.

PL: Coked out 70s Bowie? Bowie in his “fascists are cool” Nazi phase? Psychedelic space Bowie? Cross-dressing omnisexual Bowie? “Let’s Dance” Reagan Era Bowie? Damnit. You can’t just throw “Bowie” at somebody, you know that.

Interesting artile about Gen X and their apathy in youth resulting in midlife crisis. I think it relates to a lot of what you have written about / advised people to do when they seek job/career advice.

Solid points on the banking stuff – system now is chocked full of adverse incentives. In watching the Goldman stuff, was wishing the guys were more forthcoming: ie. “yeah we f-ing did it, yeah we made a ton of money, here’s why we did it, and if you want to prevent another collapse here’s what you should do . . .”

PL: Great article. The apathy is definitely the root of Gen X’s problems. The sentence in that piece where the author describes Gen X workers wearing maturity as a mask, mocking it underneath, describes almost all of us perfectly. But I can’t lay the blame on us entirely… We were born in a time of compartmentalization, homogenization, assembly line careerism. Doesn’t matter who you are, how much you earn – that’s not a fulfilling life. Maybe the kids graduating now, being tested by these adverse conditions, will get it right.

First concerning Scalia’s comment that too many bright young minds are going into law. Here are the first two paragraphs of what Scalia said:

“Well, you know, two chiefs ago, Chief Justice Burger, used to complain about the low quality of counsel. I used to have just the opposite reaction. I used to be disappointed that so many of the best minds in the country were being devoted to this enterprise.

I mean there’d be a, you know, a defense or public defender from Podunk, you know, and this woman is really brilliant, you know. Why isn’t she out inventing the automobile or, you know, doing something productive for this society?” CITE: http://blogs.wsj.com/law/2009/10/01/scalia-we-are-devoting-too-many-of-our-best-minds-to-lawyering/

Note that the class of people that Scalia decides to single out as being overqualified for their job. Public defenders. Scalia (not surprisingly considering his criminal law/procedure decisions over the years) doesn’t complain that our best minds are fighting to save a corporation some money on a transaction when everyone knows damn well the corp should just pay up. No, he says that poor people in rural areas have their rights too well represented.

Second, how long until everything collapses? 50 years? 100? And when the final reckoning happens, how bad will it be?

PL: I don’t think the context you offered undoes my point. I still think Scalia is saying, “Why law? WTF would you waste a brilliant mind on insignificant, pedestrian horseshit?”

I don’t think everything will collapse. Many of us are going to slowly adjust to a new, less enhanced standard of living. Ultimately, I see more rigid class differences emerging in the country. Many say this will be a terrible thing. Perhaps. But perhaps not. Those who shouldn’t be buying Mercedes shouldn’t be have Mercedes marketed to them. Credit’s been making unrealistic expectations realistic for too many for too long. No better way to get people saying than to remove the “Keeping up with the Joneses” element that fed so much “Idiot leverage” (buying non-revenue producing goods and services). The leverage people who wants to jump from the low to the middle or the middle to the higher class should primarily take on is that which allows them to create more income for themselves (investments in their small businesses, education, etc.). As they succeed in that, then and only then should they reward themselves be taking on some “consumption” or “splurge” leverage (buying a fancy car on credit he can afford to service, Gucci handbags, etc…). Right now, people who aspire to the next rung in the social order buy its badges first, then figure out how to pay for their new status. This hampers their ability to take on revenue producing leverage. Where they should have used the home equity to build out their business or enhance their degree, they got a Lexus truck, or a home theatre.

People want to blame the easy credit environment of the past decades for our ills, and that does bear some responsibility, but it isn’t just the availability of money that was the problem. It was how we chose to use it. A lot of us bought “stuff” we wanted where in a lot of instances we could have been turning cheap money into future revenue streams.

The future’s going to be amusing. How we find a way to keep our consumption based economy chugging along in a long term period of wage stagnation and groaning entitlement burdens will be interesting as hell. I guess we’ll just have to consume faster and faster, to keep fewer available dollars circulating rapidly to maintain good quarterlies to satisfy the market. More high speed musical chairs with cash flow.

In other words, the data that’s going into the new Wall Street regulations and hearings is not based on the national economy, but rather on how the average voter perceives the economy. After all, if Congressmen based their laws on reality rather than voter perceptions and polling they wouldn’t have gotten far enough in politics to be Congressmen.

PL: This is an excellent point. We could tax all the bankers at British ’60s rates and the revenue wouldn’t pay for a month of our entitlements.*

Wealth disparity’s the fixation of the smallest mind in any room for exactly the reasons you note. It’s a diversion from the real issue, which is that generally, in aggregate, we have unrealistic expectations about standards of living for people at all levels of a population our size in a global economy making the kinds of productivity strides technology has been allowing us to make. And from the tea partiers to the bleeding heart loons behind this well intentioned but horrible health care bill, we show time and time again a reluctance– No, scratch that… Not a “reluctance” but a refusal to sacrifice anything. “Obama’s a socialist” is coupled with “Don’t touch my Medicare!” at these right wing rallies. Shameless infantilism. And on the Left, it’s “We can’t pare down govt!” Really, why? Is it perhaps because govt is a sector the Left loves, filled with the segments of society that don’t want to compete in the private sector? Is it because economists wonder what would happen to unemployment if govt were run efficiently – removal of all fat in the system would spike unemployment to 30%?

We’re living in an absurdist joke, and I think everybody knows it. The only reason we won’t be utterly fucked like Greece is we have a printing press. Think the well off have taken more and more of the spoils over the last few years just because they’ve gotten more greedy? I don’t. I think they’ve been seeing the writing on the wall for some time and getting out ahead of what’s been a long oncoming train wreck. A lot of them are stockpiling.

*Carried interest, however, needs to be taxed at a real rate. That is a bad joke.

I look at this enormous clusterfuck, and think, this is all so stupid and trite. Mobs of deluded mediocrities ranting from both sides of the pulpit: about socialism and how Greece’s biggest problem is its social entitlements (Anyone ever been to Finland? And then look at their financials? OH SHIT, COGNITIVE DISSONANCE…) or some lefty postgrad whining about how the evil ratings agencies abdicated their responsibility to investors and 59683 other absurdities of the day. And I just think, “Seriously?” Michael Milken figured out decades ago that historically the ratings agencies were always awful at what they do. Milken was even able to pinpoint and predict their accuracy (or rather, lack thereof) by a multitude of different variables. Why should today’s underlying assumptions be any different? What happened is the result of a total suspension of disbelief on a mind-numbingly large scale and anyone looking for a grand conspiracy is wasting his/her time. Bankers simply don’t care; they have no incentive to. Ok, near the end some realized there was a problem and offloaded a few remaining structured products to investors reaching for yield – big deal.

Sorry for the rant. Pisses me off that I have to constantly listen to idiots assailing my choice of profession. Although the silver lining is that I’ve realized just how much I love my wife, no matter how many times she crashes her Alfa into concrete parking garage support beams, not that it ever really mattered. Great article, by the way. Have a nice evening.

PL: Hey, hey… Don’t go and fuck with the central conceit. Of course bankers have always lied. What’s the source of a margin in anything but the lack of information one side has about the value or price of something?

For the purposes of this Goldman suit, however, it appears the govt is asking us to suspend disbelief and assume bankers do not lie, or should not, and should be punished for doing so. God bless them on that. To get a jury alone would require scouring the hinterlands for hermits who have never borrowed money in any fashion. They couldn’t even grab a panel of hippies from some commune… They’d be too familiar with bartering, predisposing them to a defense verdict. To “deal” with someone successfully is to pull the wool over his eyes. And he knows it, and is trying to do the same thing to you. It goes on in millions of transactions every hour, at every level. Do you go back to the dealer when you overpay for a car by $5k and complain, “Hey, you bullshitted me”? This Goldman one just happened to be a whole lot more complex than 95% of the other “softly dishonest” negotiations we engage in every day.

The ratings hand-wringing is hysterical. Uh… they got paid to rate the shit by the people making the shit. WTF did you think they’d say about it? “It’s trash?” Henry Blodgett’s business model X1000 = Rating Agency. But give them credit… They’re all over Portugal and Spain right now, making up for lost time in the subprime mess by calling obvious disasters.

And give our press some credit. Ever seen shit shine like this “recovery”? You can see your reflection in this turd.

You know more than me, so tell me: In the Real Actual US Economy, it’s all about the handoff, no? The quarter or two where the Stimulus fades and private sector growth is supposed to pick up the slack? I say the handoff is going to be the stimulus dropping the baton on the track and the US private sector sitting on the sideline, staring. No double dip, but a definite sagging period, enough to start the discussion of us being The New Japan. Am I nuts?

To Squatch: I disagree with your contention that laziness leads to a system where “People invest their money in risky assets and expect to come out ahead, every time” or that this is the root of the problem. The system has been rigged by people dishonestly arguing that returns are guaranteed even when they are investing/betting against it themselves. It seems to me that GS’ great sin was selling folks the equivalent of lead poisoned toothpaste, knowing that it was lead poisoned, but not telling them that it was lead poisoned. All the while, they were betting on how soon people would start to die. It is perfectly reasonable to expect investing consumers to understand that there is risk involved with investment. But to allow someone to bundle and sell toxic assets while betting FOR failure of said assets while not telling the consumer that the assets are “shitty” and “I’m selling these to you, but my company bets that you’ll lose your ass” is unethical as hell and should be criminal. The responsibility herein lies with the seller, not the buyer.

PL: I’ve dealt with engineers in cases. He’s right. Your desire to find the least assailable, most empirically honest answer makes you incompatible with most litigators. But you all can be bent. I’ve yet to see a discipline where expert witnesses couldn’t be massaged into saying what the person paying their fee wanted. It’s just a matter of how much you’re willing to pay and how hard you’re willing to work the Thesaurus to find a way for the expert to say it while giving him/her plausible deniability or wiggle room to shift the opinion if cornered.

Goldman wasn’t hiding lead paint. The housing market was already being called a bubble at this point. IKB took the long position in a collapsing market and bought somebody’s junk. They should have known better. They didn’t. If this case were to see a jury, the best verdict would be, “IKB? Fail. Next.”

If the same was to be said of our financial system, how on Earth would Joe-Six-Pack be able to perform the necessary due diligence to properly research and manage that risk? Perhaps that’s your point: only people with business degrees and a constant, vigilant eye on the market should invest; this is no place for the uninformed. But by saying that, you’re either locking a significant portion of the population out of the markets, or forcing them to go to these professionals who can manage the risk for them (who are equally capable of such deception). It sounds like you’ve created a class of “lawyers” for the banks, and we clearly don’t need any more of them around.

PL: The parties in the Goldman deal were as sophisticated as it gets.

The ordinary man shouldn’t bother representing himself. If you’re in business, you shouldn’t clip people and leave yourself open to litigation. You should be honest, quaint as that sounds.

If you’re in a situation where you might have exposure beyond your insurance, you should have all your assets held in tenancies by entireties, or in the spouse’s name. And barring that, be ready to suck the equity out of whatever you have with a loan. Bank primes negligence creditor. No better defense to a bottom feeder suit than empty pockets. I think a lot of people make the mistake of hiding their cards early. Many times, the best argument to the threat of a lawsuit is being open about the impossibility of collection even if the other party succeeds. Or be positioned to go bankrupt if necessary. As long as it isn’t fraud or intentional, most everything’s dischargeable. People need to learn the execution side of the law. There’s an odd perception out there that a judgment is automatic money to the holder. A judgment is a piece of paper.

The horror is when Uncle Sam comes after the little guy. That’s frightening. No way out of that stuff. Even when you win, you lose everything to legal fees.

But what happens next? I’m all on board with getting rid of these fiduciary duties not to try and sell another sophisticated investor a pile of shit (although I’d still like some sort of basic level of disclosure required for information theory reasons). Where should the next generation start putting its retirement money? Or should we all just resign ourselves to working until we are dead?

Or I might be reading you wrongly and you’re instead suggesting just that we hold off on trying to deal with the moral hazard problems of “too big to fail” until later?

PL: Social Security will move to 70 in 10 years. We’re living beyond the projections. Also, the contribution’s going to be extended well beyond the $106k or so where is phases out presently. This has to happen because the alternative – means testing – is too ugly a political debate for either party to engage. http://www.iousathemovie.com (If I sound like a broken record pimping that film, it’s not a reflection on my lack of sources, but a testament to the flick’s effectiveness).

The market’s diversified enough and risk spread enough that you won’t see too many extreme long term trends. It’ll deliver over the long haul and give the illusion of providing a gambler’s path to wealth for those who want to believe, and that’s about all we need it to do. The casino’s fine, and you’re right – you don;t have any options. Where else you going to invest? Real estate? If you can handle the carry on the shit that’ll return there (and it’s a long, painful carry, because the prices of that crap are still hugely inflated and stick as hell), you ought to have the money in a hedge fund.