Tuesday, April 23, 2013

Wall Street Pathology & Jeffrey Sachs

Serge Melki/Wikimedia Commons
Many people would not be surprised if businessmen, accountants or bankers are described as only interested in the bottom-line, maybe even greedy or insensitive, but how about being "pathological greedy"? Those words were used by Jeffrey Sachs, economist and Director of the Earth Institute at Columbia University. At a recent conference Fixing the Banking System for Good, he gave the following frank talk about solving the banking problems but also about greedy and even criminal behavior among the Wall Street bankers he has been dealing with in recent years......

                                                (from the Still Report/YouTube)
The following is crossposted from the excellent blog Naked Capitalism:

" Jeffrey Sachs is a controversial figure for his neoliberal stance on macroeconomics and his role in promoting the use of “shock therapy” in emerging economies. But it is also important to recognize that criticism from a connected, respected insider has more significance than that of someone like Bill Black, who has made a career of taking on bank fraud but has never reached a top policy-making level."

See also the following selection of Sachs quotes from the above talk as transcribed on Naked Capitalism:

"So, this is a case where institutional reform of separating fractional reserve banking and basically the provision of liquidity from gambling should be done, but I would add this other point, which is that a lot of what’s happened actually and what’s been revealed is in my view prima facie criminal behavior. It’s financial fraud on a very large extent. There’s also a tremendous amount of insider trading, and you can even watch it when you’re living in New York, how that works.
So it’s not so mysterious, but we don’t even act – take John Paulson, for example. Paulson worked together with Goldman Sachs to defraud massively many European banks which bought the toxic mortgages that Paulson had put together. When this Abacus deal was taken up by the SEC, Goldman ended up paying a small fine. The chair of Goldman, of course, continued in his position and continued at White House state dinners, and Paulson wasn’t even mentioned once in any of the proceedings, and he took home a $1 billion dollar paycheck the next year, even as Goldman was paying a roughly $700-million-dollar fine, if I remember correctly, for the abuse that Paulson was part of. I can’t believe, no matter what the financial regulations, we can’t do better than that. That’s really pathetic. ...........

The final point, of course, is separating the politicians from the crooks, but maybe that’s so close together that they can’t actually be separated. Maybe it’s just the same community......
I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological. And I’m talking about the human interactions that I have. I’ve not seen anything like this, not felt it so palpably. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to people, counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, you know, in a quite literal sense. And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and no party is – I mean there’s – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere "

(underlining by this blogger; click for full transcript)

As mentioned by Naked Capitalism, others have made similar remarks about Wall Street and the dangerous mix of political and financial insiders gaming the system, but the fact that Sachs, himself an insider of a more liberal persuasion, but an insider nonetheless, has made those remarks at a public event is truly remarkable. Will this be the beginning of a more fundamental review of what's going on on Wall Street and Washington DC? And what about Professor Sachs: will he be ostracized at his next meeting with Wall Street bankers?

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