Many Happy Losers

My fondest hopes have just been dashed. I was eagerly waiting for Senate Republicans to fight financial reform the way they fought health care which would have been a sure loser. Now there’s talk of compromise. I suspect that Democrats are in a state of shock on receiving that single GOP vote in the Banking Committee favoring the Dodd bill. It hints at abandoning Mitch McConnell’s claim that the regulations in the bill would lead to more major bank bailouts, like the ones that just followed thirty years of deregulation. I was looking forward to hearing more of that argument.

After reading review of two books on our financial meltdown in the Book Review section of last Sunday's New York Times I realized how little I know about the mechanics of this part of the world of finance. I do know that the problems involved the selling of IOUs and the use of other peoples’ money to that end. But terms like derivatives, hedge funds and credit default swaps still have my head swimming.

According to the review, both books frequently refer to “selling short.”  I remember the phrase “In 1929 I sold short” from Ira Gershwin’s multiple sets of lyrics to Vernon Duke’s "I Can’t Get Started." I’ve always thought the term just meant getting out while the getting’s good. But it’s not that simple. The foundation of the shenanigans we’ve been hearing about is wagering on and profiting from the devaluation of securities. I don’t understand how this sort of bet is placed. It’s evidently more complicated than calling your broker or friendly neighborhood bookie because it requires considerable subterfuge. This suggests that the wager may be something less than kosher. It may be simplistic. But I’d say that a professional financial advisor’s recommending a security that he or she expects to fail and betting on that failure crosses the line separating misplaced speculation from thievery. In the inner circle of practitioners of this technique it may be considered genius.

I’ll wait to see the Republican version of “compromise” before getting my dander up another time, although I expect the worst or, more accurately, the least. To me the guilt goes well beyond the Frenchman named in the SEC suit and includes almost the whole the kit and caboodle, certainly Goldman Sachs chief honcho Lloyd Blankfein. My version of justice, which may be a bit draconian, would have him doing life in jail in a cell adjoining Bernie Madoff’s where they could talk about the good old days. In lieu of that I’ll have to settle for not having to read those two books.