Much discussion is being focused in Congress, recent books, articles, and in the media, on the financial crisis and the contributing factors to that crisis. Omitting until the end the role of Goldman Sachs, one important factor about the crisis must not be overlooked said James Kwak of The Baseline Scenario:
Remember that financial services are an intermediate product -- that is, we don't eat them, or live in them, or put them on in the morning. They are supposed to enable a more efficient allocation of capital, so that the non-financial economy is more productive. But what we saw since the 1980s was the unmooring of the financial sector from the rest of the economy.Financial services are supposed to serve our economy; not be the economy. Yet the trend is otherwise... over 40% of the profits of the entire US corporate sector went to the financial industry. As a reference, in 1970 it was 4%!
A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking the oversized industry won't make Wall Street happy, but what's bad for Wall Street would be good for America.Martin Wolf, of the Financial Times, wrote:
...the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole."Even the ethic has changed. Doing things with ones hands - the pride in the skill and craft of so doing - used to be our ethic; now it's who can earn the most money.
The real issue is that America has changed from a hands-on country to one that sells the products of others. As more and more production and service jobs go off-shore, only financial services are staying behind. And as Andrew Sorkin said on the Charlie Rose show last week:
...so many of these instruments on Wall Street, it's really just a casino, there is no underlying assets, they don't actually own these devices; people aren't getting mortgages because of this... What is the social utility of that?iRobot products sold to the DoD are manufactured offshore!
There was a telling quote from John Dulchinos, the CEO of Adept, during an interview by GetRobo's Noriko Kageki:
Did you know that there are a billion cell phones per year being made globally of which 200-300 million are sold in the U.S. but not a single one is built in the U.S.? Ten years ago that was not the case. If the industry can’t remain competitive, then there are no jobs. And robots are automating tasks no longer done by hand. But in almost all cases those people are redeployed into other applications in the plant and allow the plant to grow and get much more efficient.Sidebar about Goldman Sachs
From a blog entry in The Huffington Post by Senator Carl Levin:
Most investors make the assumption that people selling them securities want those securities to succeed. That's how our markets ought to work, but they don't always. The Senators who in the 1930s investigated the causes of the Great Depression stated the principle clearly:
[Investors] must believe that their investment banker would not offer them the bonds unless the banker believed them to be safe. This throws a heavy responsibility upon the banker. He may and does make mistakes. There is no way that he can avoid making mistakes because he is human and because in this world, things are only relatively secure. There is no such thing as absolute security. But while the banker may make mistakes, he must never make the mistake of offering investments to his clients which he does not believe to be good.
Goldman documents make clear that in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk mortgage-backed securities and CDOs that it wanted to get off its books in transactions that created a conflict of interest between Goldman's bottom line and its clients' interests.
CDO, and who have no defenses against the harm such exotic Wall Street creations can cause.
Running through our findings and these hearings is a thread that connects the reckless actions of mortgage brokers at WaMu with market-driven credit rating agencies and the Wall Street executives designing the next synthetic. That thread is unbridled greed, and the absence of a cop on the beat to control it.I couldn't agree more. I'm pained to see this happening during my lifetime.