Bernie Madoff steals from his depositors. An evil Jew did it! Punish the evil Jew Bernie Madoff. Jon Corzine, pillar of the progressive establishment, senior financial regulator, steals from his depositors. Derivatives did it!. Poor Jon Corzine. We must punish derivatives by regulating them further.
When someone says that derivatives caused the financial crisis, he says that everyone did it, so no one more guilty than anyone else – by which he means he is afraid of the people that did do it.
The problem is not derivatives, nor is it evil Jews. The problem is that some people can get away with enormous crimes. While those who commit financial crimes are disproportionately Ashkenazi Jews, the ones that can get away with blatant financial crimes are disproportionately non Jewish. If Jews secretly ruled the world, Jon Corzine would be in jail, and Bernie Madoff would get to keep what he stole. Of course it is quite possible that Jon Corzine is secretly Jewish, but if he is, needs to keep it secret. Therefore, Jews do not rule the world. Nor derivatives either.
Blaming Jews is a way of avoiding blaming the powerful. Blaming derivatives is a way of avoiding blaming the powerful while avoiding political incorrectness, at the expense of being obviously absurd. Derivatives cannot steal from people. Only people can steal from people. At least the guy blaming Jews does not sound crazy, whereas the guy blaming derivatives would be viewed as madhouse material, were it not that “derivatives did it†is the official truth.
Derivatives supposedly causing the financial crisis is as stupid as guns supposedly killing people, indeed a lot more stupid, since no one proposes to acquit the killer while convicting his gun.
The Nazi account of the world is incorrect, but it is lot saner, more plausible, and closer to the truth than the official account.
Regulating derivatives is a displacement activity. A displacement activity typically happens when you are too scared, confused, or conflicted to do the sane and necessary thing, so instead you do something irrelevant, which is usually an activity that is crazy or stupid under the circumstances, the circumstances being that it is extraordinarily vital to do something that is actually relevant, such as jailing Jon Corzine and recovering the money he stole, thereby discouraging repetition.
Displacement activity can be a harmless break, a pause to enable one to decide what needs to done. As a permanent alternative to relevant, but scary, action, it is madness and cowardice. Whosoever says “Derivatives did it” is crazy, cowardly, or lying, and if you engage him by naming particular identifiable people who did particular identifiable specific concrete bad things, he will interrupt you to protect himself from hearing such dangerous talk, and will run away for fear he be punished for hearing such disrespectful words, his response revealing his true motives.
They will stand still and listen if you blame Angelo Mozillo, but should you list the people bribed by Angelo Mozillo, they will shout you down or run away, or shout you down and then run away.
You can pretty clearly imply that Angelo Mozillo bribed the management of Freddy and Fannie, and no one reacts, but if you say in plain words that Angelo Mozillo bribed the management of the government sponsored enterprises to take dud mortgages off Countrywide Bank’s tab and put them on the taxpayers tab, it is like saying “nigger†in a crowded theater.
You can imply all sorts of terrible things, and progressives will not hear you say them, because crimestop prevents them from registering what you are saying, just as crimestop prevented them from noticing that the movie “District 9†preached that it was the duty of the superior kind to rule over the inferior kind.
Orwell defines crimestop as protective stupidity. A goodthinker makes himself stupid to avoid thoughtcrime
Crimestop is:
The faculty of stopping short, as though by instinct, at the threshold of any dangerous thought. It includes the power of not grasping analogies, of failing to perceive logical errors, of misunderstanding the simplest arguments if they are inimical to Ingsoc, and of being bored or repelled by any train of thought which is capable of leading in a heretical direction. In short….protective stupidity.
Goodthinker
One who strongly adheres to all of the principles of Newspeak.
In the discussion of immigration, the financial crisis, and so on and so forth, one can ascertain the principles of Newspeak, the requirements of Goodthink, by observing the outbreaks of selective stupidity. Jon Corzine’s crimes induce stupidity. Bernie Madoff’s crimes do not.
It is a thoughtcrime to say that black has acted in stereotypically black fashion, for example to say that Trayvon Martin “ducked for cover behind the bushes in the darkâ€, and we can tell it is a thoughtcrime by observing the crimestop that sets in when discussing the movements of Trayvon Martin. But not only blacks are specially protected by goodthink and crimestop. Rich white males in the government are also protected by goodthink and crimestop. Rich white males not in the government are, however, not protected.
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I disagree with your interpretation of the Madoff situation.
“Bernie Madoff steals from his depositors.”
Madoff’s depositors weren’t a random selection of people with money. They were politically connected Jews and were recruited because they were Jewish.
The impression that everyone had of Madoff before he was caught was that he was running a criminal enterprise – a hedge fund that was front running his market making clients. The people who invested with him thought that they were partners in stealing from other suckers.
Why would they be willing to trust someone that they strongly suspected was a criminal? Because he was a fellow Jew and sought out other Jews as depositors and the depositors believed that a fellow Jew would act with in group / out group morality. The emphasis on Madoff being a Jew isn’t because Jews are scapegoats but because Madoff is horrible because he stole from fellow Jews.
Corzine may have stolen from Jews but he didn’t represent himself as a Jew and steal almost entirely from Jews. There’s no sense of betrayal so no outrage.
Perhaps the attention paid to the Jewishness of Madoff is not necessarily an indication of the Nazi rationale for excusing elite bad behavior, but “derivatives†is an indication of the politically correct rationale for excusing elite bad behavior.
“Blaming Jews is a way of avoiding blaming the powerful.”
Can’t we just compromise, and blame powerful Jews?
Seriously, though, you’re making an error in counting proportion. Let’s say that of the sum total of corrupt, culpable and criminal financial players who are on the hook, the numbers break down to 46% Jewish and 54% non-Jewish (including a non-trivial number of Chinese, subcons, and mid-east Asiatics). Now you can say, and technically you’d be correct, “Jews are not the majority of the criminals here! Non-Jews are!” but this would be deceptive on two counts:
1) since Jews are only 3 to 5% of the US population, depending on how you count them, it still means that Jews are massively over-represented in the culpable criminal class, to an extent which makes their involvement decisive. Imagine for a moment that there were, in absolute terms, 43% fewer culpable criminals — what would that have done to the scenario?
2) given their massively grotesque over-representation in media, academia, journalism, law, and politics, Jews are highly influential shapers of opinion, modes of thought, and ways to proceed. This means that, among the [white] non-Jewish members of the criminal culpable class, a non-trivial number of them are effectively Jewish thinkbots — mind-zombies inculcated into manners and mores which were and are consciously sculpted as being Good for the Jews. When you further consider that the number of non-White, non-Jewish players (Chinese, subcons, Arabs etc) has been artificially increased largely as a by-product of Jewish policy manipulation, you get an interesting number indeed.
All of a sudden, when you tally up the groteque over-representation of Jews in the corridors of power, plus their proxies and cat’s-paws, both witting and unwitting, you are easily talking about a majority of those culpable.
These numbers seem suspiciously precise. To count them up, you have to decide what is ethical, what is unethical but just barely legal, and what would be just plain illegal where it not that the criminals were on a revolving door with the regulators.
Let me see your list of who is criminal. As for corrupt and culpable, you cannot have a job with a bank without being corrupt and culpable, because if you were not corrupt, you would be fired for racism and discrimination. Corrupt and culpable is a vague enough category that it is too easy to include who you want and exclude who you do not want.
Goldman Sach did not do anything flat out criminally criminal. Obviously they influenced the feds to bail out financial entities that owed Goldman Sachs money, rather than letting those entities go bust, and obviously they had conflicts of interest with their customers, in that they wanted to get dud mortgages off their hands, and so encouraged their customers to buy derivatives based on mortgages that they knew were dud, which is the sort of sharp trading that Jews are infamous for – unethical and barely legal. But when comes down to plain old fashioned bribery and fraud, the big players were Angelo Mozillo’s Countrywide bank and Kerry Killinger’s Washington Mutual. They issued dud mortgages and unloaded them by getting other people to buy them or insure them on the basis of bribes or falsified paperwork. The guys paying the bribes were not Jewish, the guys taking the bribes were, for the most part, not Jewish, and the guys falsifying the paperwork were doing so under the supervision of non Jewish CEOs.
That is a reflection of high Ashkenazi IQ.
Jews do not follow a unified Jewish line. Two Jews, three factions, a saying that I first heard as two sparts, three factions. Marx was an anti semite. The Trotskyists were and are overwhelmingly Jewish, and you will find more antisemites at a Trotskyist meeting than at a Klu Klux Klan rally. The Old Bolsheviks were overwhelmingly Jewish, but as soon as they got power proceeded to purge each other until the party was damn near Judenrein. The rise of Jews to power in the Soviet Union turned out to be bad news for Jews, and really bad news for those Jews that got into power.
Jews don’t behave in a pro Jewish manner. Rather, groups that are successful in getting group loyalty, whether synagogues, churches, Masonic halls, and so forth, are ethnically homogeneous. A Jew who is a member of such a group supports fellow members of his group, who are of course Jews, but he does not support Jews who are not members of his group.
The communists were not such a group. Communists treated fellow communists horribly, and Jewish communists treated fellow Jewish communists especially horribly.
For an example of in group benevolence in ethnically homogeneous groups, where I am now, there was a council amalgamation. The council does various projects, such as building boat ramps, redeveloping the town hall, that invariably cost about ten or twenty times what it would cost if a private individual was developing the thing with his own money. Contracts on these projects are far more lucrative than contracts where the guy issuing the contract is paying with his own money. And if you want to get a contract on one of these projects, it helps, helps a lot, if you are a member of a certain church. If, however, you are a Jew, you are SOL.
So there is no Jewish conspiracy. Rather there are a lot of conspiracies, and at the top, where the big money can be stolen, those conspiracies are disproportionately Jewish because of the higher Ashkenazi IQ.
Goddammit, *Jon* Corzine.
Thank you for the correction. I will correct the post to read Jon and not John
[…] Derivatives did it! « Jim’s Blog […]
Not that I disagree with your conclusion, but there is a noticeable difference between guns and derivatives. With guns, usually just one person shoots it, so the responsibility is clear and concentrated. One person acts in an identifiable, very bad way. With derivatives, lots and lots of people act in not readily identifiable, only slightly bad ways. Moreover, at least some of those people don’t have anything close to a full picture or understanding of what they are doing. With a (loaded) gun, most people are quite clear on what happens when you pull the trigger. Nobody’s going to say “but I didn’t know the gun would shoot”, and most people would have trouble taking anyone saying this seriously.
Well, that is the politically correct account, goodthink.
Let us look at some particular derivatives.
Angelo Mozillo makes politically correct loans to the poor and the victims of racial discrimination, which is to say, winos and wetbacks.
In order to make the loans, his loan officers massively falsify the income and assets of the recipients. He encourages, and in effect requires, such falsification.
Surprise: Politically correct loans turn out to be financially incorrect! Countrywide bank has a pile of dud loans based on wholly fraudulent loan applications.
Mozillo does some financial favors for the management of the government sponsored enterprises, who buy his dud loans at face value, thus putting them on government tab. The government sponsored enterprises falsify their accounts to disguise how many subprime loans they are buying from Countrywide bank.
The government sponsored enterprises create and sell financial derivatives based on the dud loans from Countrywide bank.
By the time the derivatives enter the picture, all the crimes have already been committed. The guy buying the derivatives from the government sponsored enterprise is not only not required to sniff out whether the loan applications underlying the derivatives are fraudulent, it is illegal for him to do so under laws intended to prevent runs on banks, and in practice, people who attempted to examine loan quality were apt to be accused of racism.
The management of the government sponsored enterprises were not behaving in slightly bad way: They were committing financial fraud in the service of political correctness and a banker who paid them off. They were behaving in a very bad way.
The people who bought the derivatives from the financial enterprises were not behaving in the slightest bit badly. They were being stupid, in trusting the government, but faith in our beloved kindly government is mandatory.
Just as every evil gun turns out to be held by a particular evil person, every evil derivative turns out to have been created by particular evil acts involving a very small number of evil enterprises acting in accordance to the will of particular evil ceos, typically two of them, not “lots and lotsâ€. The crime does not get spread around far enough to avoid culpability.
Jim,
Your not answering the fundamental question. Why do they exist? Derivatives are not stocks or bonds. They don’t raise money for companies or investments. They aren’t used to fund real capital expenditures. They are zero sum financial bets between two parties (negative sum with friction costs).
Even their “hedging” function is limited to rather simple derivatives that have been around a long time an make up a tiny part of the market (say, corn futures). And we know from subsequent events that they don’t reduce risk for either individual players or the system, which is the whole propaganda line behind why they exist.
We allow people to own guns for reasons of both sport (hunting) and freedom (to retain the threat of revolt). These are believed worth the costs (inevitable gun violence). However, we still try to place limits on the sale of guns (to the insane or criminals for instance) because in some cases we don’t think the positives outweigh the negatives.
The same argument could be used for lead paint toys, poisonous food, or any other defective product. We could let people sell this all and they prosecute them after the fact if its a bad idea, but maybe its easier to just ban this stuff outright before the fact.
With most derivatives I see no compelling interest for their existence. They are simply a way for the connected to con the unconnected, with few positive side effects. I say ban them.
They are used to fund real capital expenditures. Funding houses was by far the major use of derivatives.
Someone wants to build a house. He borrows money from the bank. The bank immediately sells the mortgage to Fannie May. Fannie May groups it with ten thousand other mortgages, and issues mortgage backed securities based on that pool. So the guys who buy the mortgage backed securities are putting up the long term money that builds the house, while the bank and Fannie only put up short term money to bridge the time between the initial loan and the people buying the mortgage backed securities.
The borrower gets the house and makes his mortgage payments, which provide income for the guy who bought the mortgage backed securities.
This system worked fine for quite some time, until evaluating mortgage loans became politicized, until it became raaaaciiiiist to deny members of certain groups mortgages just because they were broke and disinclined to pay their debts, whereupon it became a system for unloading dud loans onto other people.
When you say they were zero sum, you are probably thinking about credit default swaps, which were great, and saved the day time after time, also gave early warning of various financial disasters.
Credit default swaps allow someone who has superior knowledge that disaster is on its way to profit from the knowledge, which means that people deal with the disaster earlier, rather than later. For example, credit default swaps on Icelandic debt caused Iceland to implode much sooner that it otherwise would have, which meant that a lot less money was pissed away by Icelanders, the Icelandic banks, and the Icelandic government.
The credit default swaps that went bad were the AIG CDS swaps on mortgage backed securities. People argue, plausibly enough, that that sort of crisis is inherent in Credit Default Swaps. Maybe it is, but the problem this time was not credit default swaps, but that the mortgage backed securities were massively fraudulent.
Credit default swaps inherently involve very high counterparty risk, but they are used by sophisticated investors who keep an eye on their counterparties, so, so far, no problems, other than the AIG problem, which was not a problem with credit default swaps, but a problem with mortgages.
You might have noticed that I wasn’t talking about loan originators or GSE’s. I was talking about derivatives, about which you have just said By the time the derivatives enter the picture, all the crimes have already been committed. I agree with you about originators and GSE’s. As for (most) derivatives, as asdf says it’s a way for some people to con others in a very complicated, opaque and plausibly-deniable ways. Conning people is not good.
If asdf thinks that derivatives con people in very complicated, opaque, and plausibly deniable ways, he should produce examples.
The most obvious example of a con was making mortgage backed securities out of dud mortgages, which strikes me as straightforward, clear, and uncomplicated fraud. The load originators produced falsified loan papers, their management required them to do so and knew the loans were falsified, the gses lied about their loan portfolios.
If it is true that derivatives con people in opaque ways, that is not what caused the financial crisis. What caused the financial crisis was old fashioned and straightforward fraud and theft.
MGIC describes Countrywide’s practices as “irresponsible and fraudulent”, and list lots of examples, none of which seem very complicated, nor at all opaque, nor plausibly deniable.
Jim I’ve been meaning to ask why more people didn’t get richer betting against subprime: in your L0&05, plenty of people knew in 2005-7 that the bubble was being sustained by
– cascading hand-offs of houses to ever more preposterous suckers, i.e. bubble psychology (I would remark that just because bubble psych exists, does not mean bubble psych can necessarily cause bubbling /by itself/ in most cases)
– crooked stuff like straight-up lying about sale prices in a neighborhood, not to mention the mansions handed out to part-time fry cooks
– over-the-edge racial PC
– whatever else
So how can this info (of lies, of absurdist theater levels of racial PC) fail to get out, causing many canny persons to rake in obscene money by using credit-default instruments (?) to place inexpensive, high-payout hedge bets against the whole madness. Presumably the whole madness had been greatly tempered, had more people done this, like Kyle Bass did, since it should create a market signal of um, no.
Actually, we could ask this about a lot of people’s L0&0I, but yours perhaps especially.
As I wrote a few weeks ago at Foseti’s, arguments of the form lol no because then someone would be raking in cash are often much less true than they appear, but they are a certainly a crucial kind of analysis.
Is it possible that conformist anti-meritocracy sensu Bruce has really gone SO far that few people as canny as Bass were in a position to copy his acts? It hardly seems possible. Bass shows the careening and superfluid breadth-depth of minor or meso genius, but there are lots of really brilliant people. He did have ten years in at one of the big firms and maybe ~$10 M (?) in savings, and a network and cachet with which to recruit much more capital than that to his new firm – but I think he made billions, like 30-50x-ish payouts. So he was ingenious and had resources few have, but didn’t have any exceptional resources by Wall St standards – other than his genius, which I am sure would be evident to any Streeter to whom such things are at all evident.
Or, did tons of people make money, just much less than him. They did, I guess, but didn’t bet as much or as hard. But why didn’t they have his clarity and consequent radicality? Lucid analysis seems to make it pretty obvious. Hindsight is 20/20, but lucid analysis seems to make it equally obvious that most degrees from nonelite colleges are a bubble, and that hasn’t popped yet. It was already pretty obvious to canny people 18 months ago, at a time when there was much public or memetic ambiance of it potentially popping. The observation that reasonably elite degrees in particular, even in bullshit subjects, are not overvalued, is due to Foseti. What’s elite, maybe NYU or VA Tech on up? Nah, you need to go somewhat higher than that, I think. A STEM degree from NYU or VA Tech being a different story. Communications or anthro at NYU would be considerably overvalued, and stuff below that, way overvalued. Then there’s the low-tier JD.
> Is it possible that conformist anti-meritocracy sensu Bruce has really gone SO far that few people as canny as Bass were in a position to copy his acts?
I didn’t actually mean, copy his acts — rather I meant carry out the same acts independently or nearly independently.
Which is not to deny that it would also have been reasonable to have obtained sufficiently detailed info about his plans, and just copied what he was doing – if that info were available, and one had the ability to verify it to a decent degree. The info wasn’t real available from him, I guess ; that would rather defeat the purpose. He would call up firms and say “hi I’m a supergenius who basically just used my unnatural powers to analyze your loans really, uh, well, and in our model they come out truly scary material”. But he wouldn’t have clued them in to the total picture.
It was not easy for Michael Burry to do it. He pretty much had to create the financial institutions that would enable him to make those bets.
In general it is dangerous and foolish for people who are not well connected to attempt to use futures markets to profit from a crisis, because during the crisis, the rules are usually abruptly changed to the disfavor of those who bet correctly. You have to know that if you do win, your bet is likely to be paid out, which is apt to be a lot harder than knowing that you will win.
What ordinary people did was flip houses, then get out when the getting was good. The high finance stuff was done by high finance people, and most of them were too conformist and reluctant to rock the boat to see what everyone could see. Then finally there was a mad rush of high finance people to make those bets, and government and major financial institutions locked things down. Markets became “illiquid” meaning they would not let anyone make those bets any more.
When you hear that credit default swaps have to be regulated, they mean that never again will they let anyone make the kind of bets that Michael Burry made. Informal and half unintentional obstacles against that kind of bet have now been replaced by official bans against that kind of bet.
But there was a gold rush towards the end, so I think a lot of people did make a lot of money betting on the collapse of mortgage backed securities before markets became “illiquid”.
Panic set in late in 2005, and I think that it became impossible to make those bets very shortly afterwards. From late 2005 to 2008, the government was maintaining a fake normality on financial markets that had in reality already imploded. So if you wanted to make money betting, needed to get in short on mortgage backed securities while the getting was good, before the mad rush of people were trying unsuccessfully to get out of being long in mortgage backed securities. From late 2005 to early 2008, there were lots of people long in mortgage backed securities, who very very much did not want to be long in mortgage backed securities.
So from late 2005 to early 2008, you could not get rich shorting mortgage backed securities because markets were “illiquid” – which is to say, maintained at fake prices by government intervention, and you could not get rich shorting mortgage backed securities much before 2005, because there was no way to short them.
So there was a pretty narrow window when it was possible to get rich by predicting disaster, and there was a mad rush of people charging through that narrow window.
1) Most people don’t have enough money to get rich off a good bet. I shorted the market in 2007, but that just meant I earned XX% of my own little pittance in return. I didn’t really have the network to raise a bunch of OPM (other people’s money). The only “investor” I got was my parents 401k.
2) Knowing a market will crash and knowing when it will crash are different things. If you started shorting in 2005, the actual height of home prices, you would be bankrupt before the actual crash in 2007/2008.
3) Even when the decline sets in its hard to know when its run its course. Between not picking the exact top and the exact bottom I probably only got like 1/2 the decline on my shorts.
4) It would be very hard to pick exact winners and losers. For instance, I thought banks would do bad. But I didn’t know which would be fail and which would be bailed out. So to be safe you get the index, not the home runs.
> Angelo Mozillo makes politically correct loans to the poor and the victims of racial discrimination, which is to say, winos and wetbacks.
Frankly your forthright decodings are appreciated, but watch out, you may incur the wrath of professorin floozies if you overlook the no-hablo wetback wino sluts who constitute a severely under-served subgroup of no-hablo winos, wetback no-hablos, and trans-Rio Grande swim team members who are of incredibly easy virtue, especially when pickled in drink (sometimes vilely denigrated as ‘boozy wetback sluts’). I encountered incontrovertable evidence of this under-representation at p<0.05 after gathering preliminary data for eleven other hypotheses, mulling over 46 more, and taking advantage of bleeding-edge PTSD treatments to forget what 'bonferroni' is or means.