Author: bearing light

bearing lighthttps://leftwithballs.wordpress.com
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The Fallibility of Men

“Since we are dealing with Men, it is inevitable that we should be concerned with the most regrettable feature of their nature: their quick satiety with good.”

This is a comment J.R.R. Tolkien made about his new but quickly abandoned book “The New Shadow.” He wrote only 13 pages of it and decided it wasn’t worth writing further. Why? He thought that the story could progress only in one way: the men who are restless and discontented with peace and prosperity will seek new battles and adventures and will destroy the peace in the process. That triumphant moment when the good defeated evil at the end of The Return of The King would only last a brief second before men would bring turmoil to their own kingdom. There’s no need for Orcs or Dark Overlord – men will do it all themselves.

I’ll get back to the fantasy world later.

Last week a former RBS trader pleaded guilty to defrauding investors. It’s not big news in and of itself. But it’s a great illustration to the point I’m trying to make.

Adam Siegel was a young star at Bear Stearns back in the day. He became an MD while still in his 20s. When Bear collapsed in 2008 he jumped to RBS with a bunch of his colleagues. After the crisis RMBS/CMBS trading was on the decline so to make any kind of money in that business one had to become resourceful. And he did. His new business model involved shaving a few beeps off his counterparties. Nothing fancy really. In 2014 one of his colleagues pleaded guilty in the expanding probe and Siegel himself was placed on leave. What does he do? Goes home and rethinks his life? Ha, no. He jumps yet to another shop – Fortress – to join yet another Bear alumni Michael Nierenberg.

This story is a great example of the kind of restlessness of men that Tolkien was talking about. Life gave Siegel plenty of opportunities to retire, to abandon the game – his first employer collapsed, the other suspended him – and yet he’s incapable of walking away. Instead he jumps from one sinking ship to another, probably self-congratulating himself for his agility and perseverance.

For guys like him the worst punishment is not jail time or a large fine. For guys like him the worst punishment is being excluded from the game. Now that he’s pled guilty and is on bail, I assume that, at the very least, he’s banned from using his Bloomberg. Oh, man, denying a Bloomberg access to a trader is like denying crack to an addict. He wishes nothing more than to be able to check some quotes. If you told him that for the rest of his life he will never trade again, never hustle a client again, you would put him into a severe, suicidal-level depression. It would be an equivalent of a concert pianist breaking his fingers. Life is over.

Back to Tolkien and to a Man’s ‘satiety with good.’ Good, the way Tolkien understands it, is a boring concept to a modern-day American. To Tolkien good is content and idleness. To Siegel and to any ambitious American (and what American is not ambitious these days?) good is dissatisfaction and action. We are like Nicky Santoro who, after getting himself banned from every casino in town, keeps devising new schemes to stay in the game. “I gotta do something, I gotta do something,” Nicky tells Ace. “They ain’t getting rid of me. I’m staying here. Fuck’em.” In our current zeitgeist such tenacity and perseverance is considered virtuous.

But what if we can’t abandon the game because the game itself gives us comfort? What if it is the unfamiliarity of a new route, the lack of familiar structure that we fear? What if it is the quiet that we’re scared of? Life offers us many exits from our routine, but we can’t take it. If we truly loved the game the way we claim to – the kind of game we imagine we play: competitive, ruthless, favorable to the best player – then we should welcome any chance to “step out of the comfort zone”, as numerous self-help books advise us. But we don’t. For our trader Siegel to step out of his comfort zone would be to abandon the industry and, I dunno, coach Little League. He won’t do that voluntarily.

The funny thing is, while at the game, we often dream of freedom from “all this shit.” Numerous movies and TV shows have explored this human need. But, alas, as soon as such freedom is within our reach, we pull back, horrified. We are all masters at what we do, all right. But it’s better to practice our mastery in familiar waters.

But God speed to Adam Siegel. I wish that, if he avoids jail, he reunites with his P&L soon. Things can always get worse when ambition is denied an outlet. It’s not like he’s stiffing public workers or municipalities, right? And what’s a few basis points between friends?

The Folly of The Big Short

Before I get to critique, and there will be plenty, I have to give the movie credit where it’s due: it does an excellent job describing the convoluted structure of the products to a layman. The movie is good at describing all the details of the trade that up until now were the province of finance bloggers. Everything about the swagger and the conferences and the various participants is true. SEC was toothless and uninterested at doing their job; rating agencies didn’t want to ruin their profitable relationship with the banks; the traders are young, white, haughty and male. They even mentioned the ABX index – an obscure but important gauge of a subprime market back in the day. The pivotal moment did indeed come during the ASF in Vegas in January of 2007. The subprime market, measured by the ABX did fall about 2-3 points during the conference. It was an unprecedented move, as the index usually moved about a few ticks up until that point.

But that’s where the movie’s merits end. The first thing that I found hard to believe is how the shorts – that is the guys who shorted the market – are portrayed. You see, when you’re short and the market goes down the last thing on your mind is who’s on the other side of the trade. It’s the truth that is founded in our own fallibility. But the narrative makes all kinds of efforts to make us like the protagonists. We are told that they are brilliant oddballs, unlike the stiff Wall Street suits represented by Goldman and Deutsche bankers. I have difficulty reconciling this depiction with their actions. When you make money – that kind of money, hundreds of millions, billions – you celebrate. You’re exhilarated, even gleeful. Your longshot bet just paid off! You don’t give sermons, like Brad Pitt’s character, in a half ass attempt by screenwriters to make him look human, about how the little people are about to lose their homes and jobs. That just isn’t believable. But here we are led to believe, rather clumsily, that these guys care about the downtrodden because they are shown saying a few high-minded words to their underlings.

Second, if we have established, like the writers would like us to, that these guys actually have scruples and principles that the bad greedy bankers supposedly didn’t, then why didn’t they abandon their positions and the industry in disgust and went to live on a ranch somewhere? Many of the real life characters are still somehow involved with the industry – trading commodities (like water) or running their funds.

Third, the idea that aside from 6-7 prescient people described in the movie no one has known about what was coming is a big stretch. I understand it from a dramatic perspective of a movie, but if the film advertises itself as a serious unbiased version of events then we are not getting the full picture. We are told that no one bothered to look at loan level tapes except for Michael Burry and that’s just not the case. I mean you’re telling me that thousands of investment banking analysts, who have been crunching numbers and loan level files from subprime lenders day and night, didn’t notice that the quality of those loans was becoming worse and worse with every tape they received? That they didn’t see those low FICOs and NINJA documentations and high LTVs? That it is only those few heroic outsiders who bothered to do that? That’s fantasy realm. Every trader worth his money, and there were plenty of brilliant guys (and I’m not necessarily talking character, I’m talking professional acuity) on the trading desks, will know what it is he’s trading. The problem wasn’t that people were oblivious; the problem was that many had perverse incentives not to know. And for those who knew, it was the timing and the scope of the collapse that was a big unknown variable. And, as we saw in the movie, people got burned by being short too early.

The audience’s ire is redirected from the guys who actually shorted the market to the guys who facilitated it. Surely, the guys who facilitated it – the banks, Greg Lippmann, Wing Chau – are not without blame, but let’s not let the hedge funds off the hook. Before Michael Burry and Co. decided to short the mortgage market there wasn’t even a product available on the Street that would enable them to do so. It had to be created specifically for them as we see during the course of the movie. It was that demand for shorts that drove the issuance of shittier and shittier CDOs – so that there were something to bet against. Without that demand, perhaps, the housing collapse would be contained. They use the world’s old trick of blaming the prostitutes but not the clients.

The bigger story that got swept under the rug is why and how it was possible. This should have been a story about the realm with no rules, or the rules that are written by players as they go. When we’re told that those new products, those weapons of mass destruction are created on the fly, as the demand appears, this pivotal piece of info is presented as merely a passing link to a more audience-friendly story – the good old story of stupidity and greed. The viewer will leave the theater thinking it’s the greedy bankers’ fault, which is a convenient, simple and a rather tired notion. A takeaway here is that if one is greedy and wears a suit he’s evil, but if one is greedy but is a barefoot, unshaven, drum-playing oddball then it’s ok. It’s as if we’re steered away from pondering on what’s wrong with the entire system.

Furthermore, movies of that sort usually have some redemption in the end. There’s no redemption here. Screenwriters want us to be angry. Well, that goal was achieved. A layman will come out of that movie angry at the suits – the S&P, SEC, the bankers, but not the outsider financial cowboys. But that doesn’t absolve one from making a moral judgement. I think a movie, especially a movie exposing such spectacular misdeeds, has to carry a moral message, and this one fails to do that. What’s our takeaway? That the only recourse we have towards greedy bankers are even greedier and shrewder hedge funders, whom, after the dust settles, we will be asked to celebrate, simply because they exposed the fraud? But it is the very process of exposition, like in quantum mechanics, that made the experiment have an outcome that otherwise, without that exposition, would be very different – limited and less severe in scope. Without them, the betting process would stop at the very first level – the level that Selena Gomez played at the Blackjack table. There would be no second or third order of betting, there would be no CDOs and CDO^2. But they – the hedge funders, the shorts – opened the floodgate of a shit lake that otherwise would be contained. They are the observers of a quantum experiment that without their actions would have a very different, less severe outcome.

We are given a lot of shocking information and then left to make our own judgements. For the industry (Hollywood) that likes to give us sermons in easily digestible tidbits this is puzzling. The narrative is good at building up outrage but then, as we are shaking in our seats with rage, it stops short of making a coherent conclusion, as if the screenwriters and Michael Lewis were afraid to make a judgment after every appalling detail that they’ve given us. As such it’s just another good ol boys’ heist movie, masquerading as social commentary. The only moment in the whole movie where they come close to the truth is when an S&P executive played by Melissa Leo, herself a corrupt player, tells Steve Carell that his positions make him a hypocrite. That’s about it.

I’d like to conclude with a quote from Yves Smith’s recent blogpost, (which is a must read, btw):

“Lewis’ desire to satisfy his fan base’s craving for good guys led him to miss the most important story of our age: how a small number of operators used a nexus of astonishing leverage and camouflaged risk to bring the world financial system to its knees and miraculously walked away with their winnings. These players are not the ugly ducklings of Lewis’ fairy tale; they are merely ugly. Whether for his own profit or by accident, Lewis has denied the public the truth.”

Against Charity

The proponents of Effective Altruism believe that if a business entity (or a person) is extremely successful it is morally obligated to donate part of its proceeds to charity to alleviate world’s ills. It is interesting that they invoke ‘moral obligation’ as a reason here – if the logic is structured this way it’s hard to find a skeptic of such an idea. But why should moral obligation, in which world’s biggest donors like to wallow, only be applicable to the ‘giving’ part? Why doesn’t anyone ponder on the moral obligation of ‘not taking it in the first place’? If you think of yourself as moral, shouldn’t you be moral all the way? That’s what this article tries to uncover.

I often criticize big charity because I find most charitable foundations to be vehicles for self-promotion rather than social change. But here I will give the benefit of the doubt to the donors and assume that their benevolent urges are really coming from a deep human need to help those less fortunate. And this is where the narrative really starts to break down.

Let’s assume, for argument’s sake, that the world’s biggest donors really do have a genuine benevolent streak. Then it would be difficult for them to ignore the way that the biggest industries (which they themselves run or have holdings in) contribute to the rise in the very poverty that they then seek to alleviate. To be honest with themselves they would have to address the disease as well, not just the symptom. But Effective Altruism absolves the current capitalist model.

The irony of Effective Altruism is that it implores individuals to use their money to procure necessities for those who desperately need them, but says nothing about the system that determines how those necessities are produced and distributed in the first place.

It is curious then that as possessors of those very necessities that people need (food, clean water, medicine), Effective Altruists fail to ponder on a much simpler solution: why not just give those resources directly to people who need it, skipping the foundations and the black-tie galas? If this is a moral obligation, as they claim, then why would this kind of ‘direct’ charity be different from writing a check after reaping the profits? Are profits the necessary and unavoidable step to being an altruistic person?

But that leads to a big dilemma. It is capital’s inherent trait – search for profit – that is clashing with attempts of humans trying to be good: capital will let the drowning stranger die unless it receives adequate payment. Moreover, the capital creates those drowning strangers. Further yet, capital’s commodification of necessities directly undermines the self-sufficiency of entire populations by determining how resources are allocated. As I pointed earlier on my blogpost about globalization, people who used to be self-sufficient are being priced out of the lands they used to cultivate and live off. Then they, in turn, are being sold the products that they used to produce themselves, at a premium. Sold by the very entities that later claim to be their saviors. And when they can’t afford, well, that’s where the Davos crowd comes in on a high-horse.

Meanwhile, the capitalist class is transformed into our most potent possible savior, and the moral philosophers behind it all turn into accountants and marketers for charities with pretensions of “acting now to end world poverty” and figuring out “the most good you can do.

And when people of the Third world die from hunger or disease, such a capitalist would say: “It’s not due to me, it’s due to the market.”

Rather than asking how individual consumers can guarantee the basic sustenance of millions of people, we should be questioning an economic system that only halts misery and starvation if it is profitable. Rather than solely creating an individualized “culture of giving,” we should be challenging capitalism’s institutionalized taking.

Amen.

David Brooks Went on a Trip.

Sorry, David Brooks again. (Promise, it’s the last time). But I almost missed this piece in NYT magazine last weekend. It’s a cool read.

As I mentioned earlier, I like David Brooks. But occasionally, this student of bourgeoisie shows such a misunderstanding of his own subject that I can’t pass by quietly.

Recently David Brooks went on an $120,000 world-wide tour as an assignment for NYT. He was surprised to find that people who can spend that kind of money on a trip weren’t behaving like rich assholes. He was almost disappointed.

What sort of people go on a trip like this? Rich but not fancy. It is a sign of how stratified things have become that even within the top 1 percent there are differences between the single-digit millionaires and the double- or triple-digit millionaires. The people on this trip were by and large on the lower end of the upper class. One had a family carpet business. Another was an I.T. executive at an insurance company. There were a few law partners. There was a divorce coach who’d worked in finance, a woman who’d started a telecom business with her ex-husband and the vice chancellor from a medium-size university. Very few of these people were born to money. They did not dress rich, talk rich or put on airs. They have spent their lives busy with work and family, not jet-setting around or hanging out with the Davos crowd.

In other words, they were socially and intellectually unpretentious. They treated the crew as friends and equals and not as staff. Nobody was trying to prove they were better informed or more sophisticated than anybody else. There were times, in fact, when I almost wished there had been a little more pretense and a little more intellectual and spiritual ambition.

 

Of course they treated the crew as friends, of course they were not trying to prove anything! They don’t need to! The proof is in the fact that they are traveling in this manner. Nothing else needs to be said or done.

I mean, what did he expect: top hats and frocks and Oxbridge accent? The rich, for a long time, have not looked like that. In fact, the rich love to dress unpretentiously (I mean he described it in his own book, Bobos in Paradise). They love to pretend to be one with the people. The powerful don’t like to think of themselves and to look like powerful at all. They manifest their status by the access to exclusive services that regular folks not only haven’t heard of but can’t even conceive in their dreams (like a livered valet insisting on bringing a second bottle of champagne in Brooks’ room), not by what they wear or by how they speak. These days if you fly first class you’ll make sure you look like a bum. In fact, a folksy demeanor is almost a must-have, a way of underplaying one’s status. By Brook’s logic if one sold his company for $100 mil or made a partner at some investment firm he must immediately display it in flashy clothing items and change his manner of speech. On the contrary, such success usually behooves him to assume a role of a regular guy even more. I saw Lloyd Blankfein a few months ago near Columbus circle, walking among the crowd on the sidewalk, in unpretentious baseball hat and some dull jacket he probably got for free at some conference. That’s how the power dresses and behaves in public. Don’t look at me – the message is – I’m just like you.

Comfort, time-efficiency, exclusivity and privacy – that’s what modern-day luxury entails, not the ability to buy an expensive piece of clothing. I would think Brooks, of all people, would understand that.

Globalism and Terror

I’d like to look at the problem of terrorism from a rarely examined angle: the spread of globalization.

Up until very recently I regarded anti-globalism and its adherents as behind-the-curve luddites, idealistic kids with fancy but unemployable degrees and too much spare time on their hands.

This article, not the first one on anti-globalism that I read, but well-argued and profound given its context, nudges me even further into an anti-globalism camp.

I find this idea, that the globalism is in fact a precursor of terror, interesting and worthy of examining. In sum, we blame tradition and ‘ancient hatreds’ when it is in fact modernity and race for growth-at-all-costs that may be at the root of current spike in conflicts all over the world.

The author argues that the new global economy, brought to Global South by the developed nations, breaks down human-scale structures, destroys bonds of reciprocity and mutual dependence and forces the young to reject one’s own identity and one’s own self.

The standard thinking goes that globalization erases the self-identity of a Muslim or a Buddist or a Catholic and turns them all into one nation, one ethnicity – that of a global consumer. But, as the author shows, the opposite has occurred. As the fruits of globalization are dangled in front of everybody, only a minority, usually politically connected, is a beneficiary of those fruits. The rest see what they can be or rather what they should be and then are denied the path to that new identity. Thus tensions begin to appear where there were none before.

Continue reading →

David Brooks’ Transformation

I kinda like David Brooks, ‘kinda’ being the key word. I think he’s going through some serious soul-searching, part of which he’s eager to share with us as general thoughts on morality, and a part of which that is so personal that he’s yet afraid to mention. But it’s hard not to notice that many of his recent columns are a manifest of some personal transformation, perhaps due to collapse of his previously held beliefs. Let’s not be too harsh on him with our ever-ready schadenfreude.

A few critical thoughts on his newfound enlightenment. He’s known to zero in on the morality, especially the morality of the poor. But from his elevated position as an elite thought leader, the examination of habits of others, especially those at the bottom of social ladder, has to start with introspection. It is only after we, the elites, those for whom everyday grind comes in the form of first-world problems, take a gaze onto ourselves that we should be allowed to pontificate on the lack of morality in others, less fortunate. I’m still waiting on David Brooks to do that. I do believe that his efforts and thoughts are genuine and that he really wants to be a better man. But in order to lecture us on how to be better people he first has to face and admit his own faults. Perhaps even in a separate Mea Culpa column. He came close, like in a recent column excoriating modern GOP, but if he were truly honest with himself he would put a partial blame on himself as an earlier cheerleader and apologist when his party kept taking one wrong turn after another.

What I appreciate is his the effort, however. That shows, partially, the admission of the problem in the first place.

What we’re talking about here is not the issue of what’s legal or not. The discussion transcends the legal boundaries: some illegal things are harmless, and some legal things are harmful to a greater society. What he (and I am too) is concerned about are the issues of right and wrong and his main complaint is that we have nowhere to learn that, not in a university, not in a workplace. Our current morals stem from, as Brooks says: “…a big relativistic strain through our society that if it feels good for you, then who am I to judge?” There are no judges but those in public courts that can only interpret the civic law, not moral code. But the civic law, in many cases, will often absolve big companies of their obligations, without extending the same courtesy to an average schmo. Thus we, as a society are inarticulate in the matters of right and wrong and are also squeamish talking about it, because the language of right and wrong sounds too religious, too pious for our fast, competitive and thus hostile to thought way of life. It has a very unpleasant, monkish, Dostoyevskian flavor to utter in a polite company.

We can’t ask of Appalachian meth-cooking, dole-grabbing hillbillies to become virtuous if we don’t ask the same of the Wall Street or the politicians. That’s why it would be nice to see Brooks to take on the privileged first. It is only by their own example, by their new virtuous way of life that they earn the right to lecture the ‘unwashed’ on how to lead moral lives.

Slavoj Zizek on Charity (and many other things)

From this interview.

“I don’t believe in this model of society where the solution will be for the very rich people to spend half of their earnings. The problem is that first, they get all the money in the system, in the sense that they profit tremendously, and then they repay the debt. I simply don’t think charity and welfare is the solution.

The problem with charity is that it’s part of general ideology today. Instead of asking systematic questions like “What’s wrong with our system?” you go into personal responsibility. For me, the unsurpassable model of what is false in charity is still the first big one: Carnegie, of Carnegie Hall. On the one hand, yes, he did everything, building cultural home, concerts, etc., but on the other hand, he employed hundreds of Pinkerton detectives in Texas to beat workers to break trade unions. That’s the model for me, you know. First, you extremely brutally beat the workers, and then you offer them a concert.”

If people who give to charity were truly charitable towards their fellow human beings they would question their very business model that have enabled them to enrich themselves to such an extend, not dispense handouts on a whim.

A Modern Day Dilemma, Explored.

This Aeon magazine article, long and meditating on details, encapsulates my ideas – the kind of ideas that are increasingly becoming my main point of interest – on the two major irreconcilable forces that drive our identity: the fulfillment (or lack of it) that we find in work and our desire (and inability) to be good people. Can we have day jobs (the kind that can pay our bills) and be the good guys at the same time?

As I wrote a lot of posts on the topic, I could not have better condensed my sentiment into a simple sentence:

“The innocent moral imperative to stand on your own two feet helps sustain structures of inequality that have come to seem – no lesser word will do – barbaric. The work ethic has a lot to answer for.”

In other words, as we struggle to survive under the current economic structure and get better at it, as we become more resourceful at and more dedicated to our jobs, we inadvertently help sustain this vicious circle of inequality. What we think of as a virtue – being good at what you do, or, to be more precise, being good at no matter what you do – is, in fact, a vice.

The author makes a point that television, albeit a what we call high-quality TV, can actually provide an idea of what it would take to be a better person while doing your job, as opposed to merely lament, as old traditional TV shows did, on how meaningless our day work is. Here I want to put the TV part aside, however, and just focus on author’s superb analysis of the status quo.

“The work ethic used to mean putting yourself on the line. Today, physical risk has been replaced by speculative risk.”

The author juxtaposes a cop and a finance guy (and we don’t really need a TV show for that) to demonstrate that, while both work hard, one of them gets all the goods and the other is assigned with protecting the former’s property while risking his life doing it. If you’re doing good at your day job, like enforcing the law or care for the sick or the elderly, does that make you into a sucker? Then he goes to make a point, or rather ask a philosophical question, that I have been pondering for years:

“How much of what we call respectable work is something that nobody under any circumstances should be allowed to do? Such subversive questions are actively provoked by the long-running gangster shows The Sopranos, Boardwalk Empire and Breaking Bad. These particular series are all about men, and all a man wants to do is provide for his family. But given the rules of the game, providing for your family might entail committing acts you can’t tell your family about, including murder. That’s just how it is. It’s not your fault. You’re just doing your job.”

By veiling our dedication to our jobs, no matter how unethical, in a shroud of ‘providing for the family’ is a mental escape that many of us use to get through the day. And because we’re so busy, we have no time to examine it, to think of it from this angle, let alone to change anything about it.

It is interesting to see the author to conceive a situation, albeit utopian, where we would reconcile the competition and cooperation: a Zombie apocalypse. This is a situation where we would abandon a sharp division of labor and our individual specializations. As I routinely mock finance guys who go out of their way to seek physical hardships, whether out of boredom or excess energy or preparation for a total economic collapse, perhaps there’s some real truth to my scorn. These demonstrations of physical prowess are their subconscious manifestations, perhaps even a longing, for the world where the real meaning would exist. But if and when the real Zombie apocalypse happens and we’re forced to apply our physical skills to survive, the upheaval would also force us to have a conversation about what it means to do meaningful things. Are we prepared or even mentally equipped to have that conversation?

Yet Another Example of a Modern American Business Model.

This recent article in The Atlantic gives another great example of how our current economic system is tweaked to serve the few at the cost to the many.

In a nutshell, what happened is the homeowner had a loan with BofA, which he refinanced in 2009. The new, modified terms of the loan allowed him to avoid defaulting on it. Because the loan was insured by FHA, BofA has received the full payment from FHA and transferred the loan to the government agency. FHA then sold this loan, at a deep discount, to a hedge fund. In 2011 that homeowner finds out that the modified terms (and the reduced monthly payments he was paying) are being disputed by the new holder of the mortgage, Oaktree Capital, and that he now actually owes the full back payments (the original payments of the unmodified mortgage) if he wants to avoid foreclosure. Now, before we even move further with the story, I want to dwell on it. There’s too much to unpack here. Yes, yes, I understand this is business, and the businesses are not non-profits, and this is just an unfortunate situation for this one particular guy, and nothing illegal transpired and why don’t we just move along, because the firms that provide credit and liquidity to the markets are the arteries of the economy and let’s not get hung up on the one guy who got caught under the wheels of commerce. But I don’t want to move along. I want to understand why a guy with a mortgage, who follows the rules, is completely defenseless against such turn of events. What recourse does he have if a bank transferred his loan to FHA (a government agency), and FHA, instead of adhering to its principals of building stable communities and promote homeownership, discards this loan, at a discount, to the least scrupulous guys on earth – the hedge funds? What do you expect those hedge funds to do – to help this poor guy figure out how to keep his house? No, helping the guy is what the charity is for; but this is how we make money.

FHA selling loans to hedge funds is indicative of what happens when a government agency is forced to have a bottom line. This loans sales program came about under intense pressure from Congress – a legislative body deeply allergic to any kind of spending. This dysfunctional convergence of forces – legislation that is adamantly against spending, a government agency forced to fend for itself, and vultures looking to profit – as always has to be sorted out by the little guy who played by the rules.

Why and how have we allowed businesses to evolve to such a grotesque form – a form where their bottom line supersedes the rights of the ordinary citizens? The homeowner was doing all the right things, things that are routinely praised as guarantors of success by the conservative and neoliberal cheerleaders – he modified his mortgage terms and was adhering to those new terms. Then, out of the blue, some third party comes in and tells him that those terms are null and void and please pay up now. If this is capitalism, if this is free markets, how can one still insists, with a straight face, that this system is better than socialism? How is it better? What protection an average schmuck has against such unaccountable and wanton market forces? What did he do wrong?

This is a great illustration of how broken this whole system is. The big underlying problem is that to survive one has to cut corners and to make deals, often semi-legal or borderline illegal; or, better yet, to write laws that will make legal what would otherwise be illegal. FHA selling loans to hedge funds and washing its hands off of underwater homeowners were totally legal. Still, wheeling and dealing is a realm of the privileged. If you’re some guy who cuts corners by selling loose cigarettes on the street corner you’re gonna end up dead. But when the suits cut corners then we routinely get a talk about a sacred and untouchable ‘bottom line’, that has somehow evolved into the ultimate argument bludgeon.

And final philosophical point. Guys at Oaktree are not fools, at the end of the day they know what they’re doing. I know the type well – this is the bare-legged, super-fit guy you see running in Central Park during the rain or snowstorm, preparing for a marathon or an Iron Man, because he read in a self-help business book how overcoming obstacles makes one a winner. This is the guy who, when his daughter asks him “Daddy, what do you do?” pauses for a second, and then, snapping out of a momentary embarrassment that he’s not a firefighter or a pilot, explains, mostly to himself, that he’s a little cog that makes the big wheels of finance turning, the efficient mover of capital, the engine of the economy. This is the guy with a self-awareness (today’s hedge funders are all about meditation and mindfulness), but also a void that he can’t fill – neither with marathons, nor with underground fight clubs, nor with ostentatious charity. And it weighs on him. It weighs on him bad. And he can’t find an escape. 20 years from now, when he sits in some new-agey condo on the beach or a high-tech cabin in the Colorado Mountains, wistful and restless, it will dawn on him what a joke his entire life has been. But it will be too late.