Roger Ebert's blog on Financial Reform

It's depressing:

Wall Street's dirty, rotten scoundrels
By
Roger Ebert
on May 23, 2010

I am but a naive outsider. I don't fully understand the working of the "derivatives" and "credit swaps" that we have heard so much about in recent months. I'm not alone. But I'm learning. I gather that these are ingenious computer-driven trading schemes in which good money can be earned from bad debt, and Wall Street's Masters of the Universe pocket untold millions at the same time they bankrupt their investors and their own companies.

This process is explained in a shocking documentary named "Inside Job," which was just named the best single film at Cannes 2010. It wasn't in competition. The voters in the poll were a group of 19 movie critics polled by IndieWire. (I wasn't one of them.) It was the only film to earn an A average. It is a very angry, very carefully argued, brutally clear documentary about how the American financial industry set out deliberately to defraud the ordinary American investor. It was directed by Charles Ferguson (below), whose academic, business and government backgrounds make him unusually well-qualified for this subject. The remorseless narration is by Matt Damon.

Here is the argument of the film, in four sentences. From Roosevelt until Reagan, the American economy enjoyed 40 years of stability, prosperity and growth. Beginning with Reagan's moves against financial regulation, that sound base has been progressively eroded. The crucial federal error (in administrations of both parties) was to allow financial institutions to trade on their own behalf. Today many large trading banks are betting against their own customers.

Here is how it works in the real estate market. Banks aggressively promote mortgages to people who cannot afford to pay them--who are bad credit risks. These mortgages are assembled with many similar packages. The packages are fragmented. They are carried on the books as tangible assets, when they are worthless. The institutions assembling them can hedge their bets by betting against them. Thus, when the mortgages fail, as they must, the profits are made despite and because of their failure.

A Chicago group named Magnetar was particularly successful in creating such poisoned instruments for the sole purpose of hedging against them. Its story is told in the current best-seller, The Big Short: Inside the Doomsday Machine," by Michael Lewis. Magnetar's clients included Merrill Lynch, Citigroup, UBS, JP Morgan Chase, and others. They knew exactly what the "Magnetar Trade," was, and welcomed it, because it protected them against the risk of selling bad mortgages. The more mortgages that failed, the more money they made. ...snip


Here's where it get's very depressing:

The Financial Reform Act of 2010, passed Thursday, is a step in the right direction. It has been called the most meaningful Wall Street legislation since the Great Depression. But it doesn't block firms from trading on their own behalf. I would like to say the Obama Administration was in the forefront of that crucial reform, but it was not. There seems to be an unholy bipartisan alliance in favor of Wall Street greed.

It is easy to say Republicans oppose financial reform, because they do. Only four brave GOP Senators voted for the act. But it's too easy to say Democrats support it, although they do, because they stop short. If firms can still bet against their own clients, lesser measures amount to pissing on a forest fire. All current financial reform measures are taking place within a world infested with Wall Street lobbyists--four lobbyists to every member of Congress. It is amusing to hear the Tea Party describe Obama as a radical. In the area of financial reform, he is no more radical than Clinton and the two Bushes.

Gene Siskel, who was a wise man, once gave me the best investment advice I've ever received. "You can never outsmart the market, if that's what you're trying to do," he said. "Find something you love, for reasons you understand, that not everyone agrees with you about, and put your money in it."

That seemed to make sense. I bought Steak n Shake, Apple, Wholesome and Hearty Foods, and Google. Faithful readers will know why I bought Steak n Shake. I was a Macintosh fan from the late 1980s, and that's when I started buying. After becoming obsessed with low-fat vegetarian eating, I bought W&H, which made the Gardenburger. I liked Google when it was first introduced, and bought shares the day it went public. I had absolutely no investment advice except Siskel's. Reader, if only I had invested every penny I had in those stocks, today I would be a Master of the Universe.

After the Financial Reform Act of 2010, Wall Street is relieved.
http://blogs.suntimes.com/ebert/2010/05/i_am_but_a_naive.html

... is a joke just like health care "reform".

It will placate the stupid, which includes most Republicans and all too many Democrats, but it does almost nothing to rein in Wall Street.

:thumbsup: