Follow the Money

Posted: October 7, 2008 in Economics, Legal Matters, Media, Politics

Several blogs and news sites I frequent have linked to an article in the Columbia Journalism Review called “Boiler Room” that takes its principal theme from the movie of the same name. It’s a thoughtful and well-written article that describes the motivations and attitudes behind the credit crisis currently causing the full-on implosion of financial markets everywhere. The article blames the business press in particular for failing to frame the issues properly and report responsibly on the shenanigans of the financial sector. Indeed, the same can be said of many blogs commenting on the story. Why are more critics not recognizing and saying aloud that the behaviors underlying financial dealings in the last couple decades are just plain criminal? Was nothing learned from the savings and loan scandal? Was there not an abundance of klaxons noisily warning of circumstances and incentives that led ineluctably to wave after wave of corruption, financial crime, and collapse?

Let me just say it clearly, then: the people behind corporate, banking, insurance, and investment firm collapses are criminal. There was nothing passive about it. They should be arrested, tried, convicted, stripped of their ill-begotten fortunes, and sent to jail.

In criminal matters, a basic investigative strategy is to follow the money: find the ultimate destination of the cash and find the culprit. Usually, as fictional crime stories go, the culprit is some shadowy figure operating behind the scenes. More recently, fictional stories tend to place the culprit at the center of the story and may only reveal the magnitude of evil at the end. Today, there is no secrecy as to where culpability lies, and there is no story twist or last-second reveal to tweak our sensibilities. Rather, everything has been occurring out in the open and with an astonishing guilelessness.

It’s scarcely different with the bailout, which on the short term at least has failed to stem a collapse of confidence — confidence being necessary to perpetuate a systemic fraud, or more properly, con game. So where is that $700 billion flowing? Well, it’s going to the same people and places that conned everyone in the first place. Call it a long con.

We’ve been told over and over that the bailout is necessary to restore confidence. This article in the New York Times is notable for its picaresque anecdote from the Great Depression:

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

Maybe there is some truth to this as applied to today’s situation, but it’s a cheap rhetorical trick nonetheless. It also doesn’t mask the fact that the bailout money is flowing in precisely the wrong direction, a part of the same wealth transfer project begun 20+ years ago in the Reagan era. The sad consolation is that our dire situation is shared around the globe. We’re all in the same boat, and we’re all bailing now.

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