Calling All Suckers: Big Banks Pull off the Ultimate Bait & Switch

Market manipulation is alive and well on Wall Street.  Calling all suckers:

Submitted by Rolfe Winkler, CFA, publisher of OptionARMageddon

We’re not quite as healthy as we thought we were. Oops. (WSJ)

J.P. Morgan Chase Chief Executive James Dimon said…that March was a little tougher than the first two months of the year….Bank of America…CEO Kenneth Lewis also said that March had been a tougher month for his bank. [Convenient that they decided to dump this information on Friday afternoon, and at the close of a very good week].

Readers may recall that a few weeks ago, those two CEOs—along with Citi’s Vikram Pandit—said the first two months of the year had been very good:

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Grandpa Smith Knows Best

Robert Waldmann reminds us of what that sage Scotsman told us 234 years ago:  (via Angry Bear.)

“All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters”

Adam Smith (1776) “The Wealth of Nations.” Book III Chapter 4.

Of course as Tom Wolfe observed (and as Wall St itself proudly proclaimed in recent years):

On Wall Street he and a few others – how many? three hundred, four hundred, five hundred? had become precisely that… Masters of the Universe

On the new god: ‘the Market’

Paul Krugman writes:

But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.

The market mystique didn’t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.

via Op-Ed Columnist – The Market Mystique – NYTimes.com.

Although Krugman limits his analysis to finance, the overall theme is similar to one I’ve been working on for a decade.  Namely, that in the last generation, American culture, politics, and business has begun to reify “the market”.  Once “the market” became reified and came to thought of as actual functioning super-being of sorts, it loosed all kinds of havoc.  Instead of “the market” being an abstraction of economists to describe the process by which actual people buy and sell actual stuff, “the market” became the super-being that guided society.  Phrases like “the market says…” and “the market dictates…” and “the demands of the market….” entered our discussions.

Once reifyied, people began to deify the market.   Ethical concerns are abandoned – our god “the market” requires us to behave this way.  People gave into unbridled greed and pursuit of wealth simply for the sake of accumulating wealth.  I’m not talking about the accumulation of wealth that hard-working lower and middle class people do in mid-life as a reasonable way to insure themselves against the uncertainties of the future or old age.  I’m talking about the monstrous accumulation of wealth that says the 3rd and 4th house are necessary, the 10 and 20 and 30 million dollar bonuses are necessary every year even if it means making the subordinate workers work longer hours for less pay.  People absolved themselves of any ethical concerns because their idol, the “market”, made them do it.

Personally I noticed the shift in the mid-1990’s as a business strategic planning consultant.  At that time I became acutely aware that corporate managements were less and less concerned with how to build an ongoing business or strengthen the long-term viability of a production process or even how to improve products/services.  Instead attention increasingly shifted to playing games that would increase the stock price.  Divest this unit, buy those firms, leverage it, spin the PR, and dump it for more $.  The rationale given in the meeting rooms increasingly shifted to “the market is forcing us to do this”.

We have lost our way and raised a new idol.  Unfortunately (and I am ashamed to say it) economists (most mainstream, not all)  have had a large part in this.  We reified our models.  Then, we promoted the concept of the market as some magical force that fixed all things while government was corrupt.  The roots of our current crisis lie here.  We need to right the direction of the ship.

After 15 Years, Nafta’s Promise Still Unfulfilled in Mexico – NYTimes.com

After 15 Years, Nafta’s Promise Still Unfulfilled in Mexico – NYTimes.com.

A good news story about how the promise of Free Trade (in this case NAFTA) sometimes doesn’t happen.  What we call institutional factors get in the way – a government won’t disrupt oligopolies or oligarchs,  currency problems interfere, the other party/country doesn’t play fair, etc.

Change? Looks like same ol’ same ol’ to me.

Excellent but long post by Edward Harrison at Naked Capitalism.

This post describes what’s happening with the “Geithner Plan” for revised bailout of banks/ dealing with toxic assets in the context of an earlier bailout:  the Mexican currency crisis in 1994-95.  It”s many of the same folks involved:  Summers, Geithner, and a populist sentiment in Congress that the powers that be decided to go around.

Good read for both the current crisis and to review the Mexican currency crisis.