Daily Archives: August 14, 2013

The Government is Finally Arresting Wall Street Bankers…For Losing Wall Street’s Money

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The Real News Network has the interview The Government is Finally Arresting Wall Street Bankers…For Losing Wall Street’s Money with Bill Black.



DESVARIEUX: So, Bill, will you please just summarize for us what is the story behind this “London Whale” scandal?


BLACK: Sure. This is actually a story of Glass-Steagall, which was the legislation adopted after the Great Depression to prevent conflicts of interest from owning the same investment banking company and a commercial banking company. And we got rid of Glass-Steagall, which had been a brilliant success, in the next to last year of the Clinton administration. And then, of course, we had a disaster, and we passed legislation that’s called the Volcker bill that unfortunately doesn’t simply repeal the repeal of Glass-Steagall, but it’s designed to prevent this kind of speculation in derivatives by commercial banks.

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Now, these are not Wall Street traders, by the way. These are City of London traders. And that’s happening for a reason, because the City of London won the competition in laxity. And so, much of the sleaziest activity in the largest commercial banks in the world moved to the City of London, including the so-called “London Whale”, the huge trader for JPMorgan. But that’s also where the LIBOR scandal has been, the HSBC money laundering scandals, etc., etc., etc. So there’s something very rotten in the heart of the financial industry in the City of London.




I have quoted this specific part of the interview in the hopes that you will remember this every time you hear the defenders of Larry Summers say that repeal of the Glass-Steagall act had nothing to do with the crash of the big banks.


Larry Summers was a key part of the Clinton administration that supported the repeal. 


The people who now carefully calculate that the repeal could not have caused the magnitude of the collapse are also the ones that predicted that the collapse of the mortgage market would not have a significant impact on the economy.  You have to ask yourself, how could their calculations have been so far off the mark?  Should we believe their calculations this time that Larry Summers was great for the economy?


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Mindless Budget Reporting: Fooling Some of the People All of the Time
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The PBS story,  Mindless Budget Reporting: Fooling Some of the People All of the Time by Dean Baker talks about an example of Greenberg’s Law of The Media. Baker is castigating a report in The New York Times.




“A plan by House leaders to cut $40 billion from the food stamp program — twice the amount of cuts proposed in a House bill that failed in June — threatens to derail efforts by the House and Senate to work together to complete a farm bill before agriculture programs expire on Sept. 30.”


The problem with this description of the Republican plan is that the proposed cut of $40 billion is supposed to be over a 10-year budget window, not a single year. (The Republicans want to cut the food stamp budget by 5 percent, not 50 percent.) This information is not reported anywhere in the article. As a result, even a very intelligent and extremely knowledgeable person like Krugman could read through the piece and be off by a factor of 10 in his understanding of the size of the proposed cuts.




One of the ways Greenberg’s Law is demonstrated is to give us a number out of context. You are obviously supposed to infer that the number illustrates some point that the reporter is implying, but you are never given the context to judge whether the desired inference is correct.  It is unlikely that the reporter knows whether the desired inference is correct.


Baker is correct that all you know is that it is a large number.  If you don’t know whether it is over 1 year or 10, or what fraction it is of the budget, or how this government spending compares to the spending of the corporate sector under similar circumstances, then you have no idea if the number is too large, too small, or just about right.  However, your thinking about the matter has been prejudiced by the report.  Because of this, you might come away from reading or hearing the story with less knowledge than you started with.


Sort of like all of Faux Noise, the more you watch, the less you know.