Dressed in Black

With markets rallying over Treasury Secretary Tim Geithner's resurrection as the savior of Wall Street and American banking, we mere mortals should be shivering. The Dow rose nearly 500 points, the S & P 500 increased by 7.8% yesterday. Everyone in a suit and tie was praising the formerly reviled Geithner.

But what is good for Wall Street and banks, the sale of toxic assets, is not necessarily good for you and me, even though our 401 k retirement investments might have regained some of their value yesterday. Read Paul Krugman's column in the New York Times. Remember, he won a Nobel Prize for economics.

This assumption that the American financial system is just fine, thank you, with some excesses, yes, is what allowed someone like Bernie Madoff to flourish and dewealth almost 5,000 "investors." Returns were evaluated solely in dollars, ignoring unspoken beliefs that due to his position, Madoff had access to corrupting insider information, which must have driven these "investors" when Bernie was making profits for them and the market was tanking elsewhere.

Now Lucinda Franks, formerly of the New York Times, has written quite a piece for TheDailyBeast.com, claiming that even the "legitimate brokerage" floors of Madoff's world were phony.

Madoff insisted that everything on that floor must be black. An employee with a silver picture frame was told to replace it. A strange obsession for a man who was allegedly very busy finding foolproof ways to invest in volatile and changing markets. The 17th floor was supposedly the place where the phony business was run. However, according to a former employee: the proprietary and market-making arms on the 18th and 19th floors of Madoff Securities, were designed to lure investors in, especially highly placed figures in society, and to fool the SEC into thinking that he had a large and impressive galaxy of businesses.

Employees throughout the Madoff floors were overpaid and underworked, which leads one to believe that his sons and wife, and niece, are all about to be indicted for their role in the ponzi scheme.

What allowed Madoff to reign, what allowed Joe Cassano to bring down AIG with his sale of $600 trillion in credit default swaps, what allowed banks to structure mortgage rates and commissions to profit from exploitation and fraud, well these aren't signs that the American financial markets are essentially healthy. Tim Geithner is no hero to me, and he shouldn't be for you either. Until we have a full investigation, full accountability, then the banking debacle will remain, like American use of torture in the "war on terror," an unexamined chapter of our history that will inevitably repeat itself.

More About Money

While flying cross country today, I got fully engrossed in The Ascent of Money by Niall Ferguson, still determined to know enough about what a credit default swap is to be able to explain it in less than a paragraph.

I'm not there yet, although I do understand that "they" are the reason for the collapse of the global financial markets, and perhaps, if one is as pessimistic as Barbara Ehrenreich and Bill Fletcher, Jr. in The Nation, March 23, 2009 issue, the end of capitalism.

Credit default swaps were as phony as the ENRON scheme, creating something to sell out of nothing, with no independent evaluation, no collateral, no reserves, no nothing. As I said, I'm still am not quite sure what "they" are.

ENRON like the Madoff investments, was all glitter and not much else, although as a cautionary note, by the end of 2000, just a year before it collapsed, ENRON was the fourth largest company in the US, employing 21,000 people.

However, Ferguson does explain five stages of a financial cycle, and we need to learn about these so that we don't get tricked again.

1- Displacement: Some change in economic circumstances creates new opportunities for profit, like technology innovations, energy discoveries, deregulation that permits new forms of "securities" to be devised by wicked and clever lawyers and folks with MBA degrees.

2- Euphoria or overtrading: rising expected profits lead to rapid growth of share prices, like the insanity with IPOs in the dotcom era and ENRON, and now with these risky mortgages that got bundled with more secure ones and sold, and AIG agreed to insure.

3- Mania or bubble: easy capital gains attracts first time investors, people who are not regulars in the stock market, but who are lured there, often by unscrupulous brokers, by the idea of making a quick profit.

4- Distress: insiders understand that the end is near and pull out from the market. In the months before ENRON's collapse, the insiders--Ken Lay, Skilling, et al. sold millions of dollars of ENRON stock. Bernie Madoff's wife withdraw millions from his supposed legitimate investment company just weeks before he confessed.

5-Revulsion or discredit: and it all falls down.

NEWS FLASH: Today the NAACP filed suit against Wells Fargo and HSBC banks for racial discrimination, for selling mortgages, often sub prime mortgages, that charged African Americans higher rates.

Radical Change or Nothing

Some of my dearest friends chipped in and bought me a Kindle for my sixtieth birthday. It's on back order so I have some time to get accustomed to this new electronic device in my life. I'm a reader: I subscribe to The Nation, The New Yorker, Harper's, The Atlantic, and I get the New York Times delivered on Saturday and Sunday. My daughter's subscriptions to The Rolling Stone and Vanity Fair were sent to me this fall since she was studying abroad. Unlike my husband, I do not read every article in every magazine. I skim, I cherry pick, I only read what keeps my attention.

I read several books at a time. I have a well-worn library card, because I have a forty minute each way commute to work and am addicted to books-on-tape, now books-on-cd. I refuse to buy them, because they are far too expensive. Instead I pressure my local library to improve the quality of their purchases, so that I have more choices. This week I am listening to Toni Morrison read her new book A Mercy. Not an easy task since it is breathtakingly sorrowful and so poetic that sometimes I don't quite understand what is happening, and have to wait patiently, until Morrison is ready to fill in the gaps.

With a Kindle, I will have to download books, for a price, from Amazon.com, abandoning my allegiance to my local independent book store and the library, except for my books-on-cd, although I understand I can download those and listen in the car from my Kindle.

Having spent a lifetime touching books--my grandfather, the same one who taught me about opera, gave me a book every time he saw me, using the Kindle will be a radical change for me. I once spent a dismal plane ride, circling Philadelphia for hours because we couldn't land at LaGuardia, seated next to an artist who designed the interior of the bookstore I never opened. Way before anyone else did it, I thought about having a book store and cafe. But like my idea to have a singles bar in a laundromat, I never got around to it.

I won't be touching books anymore, but will have the opportunity, according to my friends, to underline and write notes, and store multiple books on my Kindle, so that I can access them later. I do deface books regularly, which is the reason why I buy many of them instead of relying solely on the public library.

Eating Christmas dinner with friends last night, we talked about what needs to happen in order to change the course of this downward tailspin: retail sales down 5-8% (much of it the result of falling gas prices); Bergdorf Goodman, the most luxurious department store in New York, having an on-line sale advertized on nytimes.com, sharing its spot with the film "Doubt,", Neiman Marcus, and "Revolutionary Road"; daily reports that this charity, every college and university, or that social justice organization begging for funding because of the hedge fund collapse, Bernie Madoff, or the dive in the world stock markets; labor unions panting from the accusations lodged against them after they worked so hard to elect Barack Obama, mostly because unlike most of us, they have fixed-benefit pensions still. The list could go on forever, I suppose.

What we concurred on was this: despairing times call for radical change. It's the only time radical change is feasible. So dump Caroline Kennedy as the choice for New York's new Senator and absolutely forget about Jeb Bush as Florida's Senator in 2010. Haven't we learned that dynasties are a waste of time. Read Paul Krugman about the need to have radical change, but squeaky clean radical change. Read Frank Rich in his suggestion that the brightest might not be what we need right now.

This is our opportunity to think outside the box. To be radical. To move the stream.