16-Mar-10 News - Historic Israeli-US ties deteriorate - 16-Mar-2010 - Generational Dynamics

Michael Lewis is now out with a new book, "The Big Short," describing the the people who made money from the financial crisis, while millions of others had their life savings destroyed. He appeared on the TV show 60 Minutes on Sunday evening, but what I found more interesting was an interview that was broadcast on Bloomberg TV on Monday.

Lewis was asked whom he blamed for the financial crisis, and here's what he said (my transcription):

"If I had to put my finger on one person, or one kind of person, one role player in this crisis who I would like to string up, rather, I would like to to have him answer questiosn homnestly to the public, I think it would be [[pauses for several seconds]] the people who I know who knew better.

I would like for the people who designed synthetic CDOs at Goldman Sachs and persuaded AIG to insure them, to essentially take all the risk in the subprime mortgage market in 2005. I would like for them to explain what they thought they were doing.

There was nothing illegal about what they did, it was just exploitative, it was wrong but they were smart enough and their position in the society was elevated enough that you would have thought that they would have paused and said I have some responsibility not to do this, or to prevent this from happening, not actually make it happen.

I hold, there's a very obvious status structure on Wall Street, ratings agencies aren't even in it, but at the very top of the status structure is Goldman Sachs, certain traders at Goldman Sachs, and hedge funds. when the people at the top set such a bad example, everything else in a weird way follows from it.

I would like the genuine elites to explain why they behaved in the way they did it because I think in the end, if you are going to get back to a saner our relationship between our financial system and the rest of the economy, the rest of the society. you have to have people at the very top of that structure who have some sense of social obligation. They do not right now."

Even though I don't agree with some of the things he says, I think this is very intriguing.

He paused for several seconds and chose his words carefully, probably because he doesn't want to get sued, but he finally placed the blame as follows: "I would like for the people who designed synthetic CDOs at Goldman Sachs and persuaded AIG to ensure them, to essentially take all the risk in the subprime mortgage market in 2005."

Presumably he's talking about the Gen-Xers who designed the CDOs that later turned out to be "toxic assets," and he blames the Boomer bosses who helped sell them to AIG. As I've said many times, the financial crisis could not have been perpetrated by Gen-Xers alone, or by Boomers alone; the unique features of both generations, working in unison, were required to perpetrate these crimes.

He says that they're NOT crimes, that Goldman Sachs did nothing illegal, but that they should have to explain why they did it.

And yet, Lewis is describing a crime of securities fraud. He's clearly implying that the people who designed the CDOs knew they were defective (or why would any explanation now be required?), and he explicitly says that the people who knew this then went on to persuade AIG to insure them. Well, if the people at Goldman Sachs knew they were defective, then they must have lied to the people at AIG to persuade AIG to insure them, and that would be fraud.

So Lewis is saying indirectly that the people at Goldman Sachs were comitting fraud in 2005.

But wait a minute. Were the people at AIG idiots? Were they neophytes? If the people at Goldman knew that the CDOs were defective, then surely the brainy people at AIG must have figured it out as well. So why did they agree to insure the defective CDOs?

Well of course that answer is obvious. The people at AIG knew that the CDOs were defective, but they didn't give a sh-t. They insured them in order to collect fat commissions and million dollar bonuses, knowing that when the insurance had to be paid off, it would be someone else's problem.

And what makes me furious at Lewis, as well as all the other bloggers and reporters who write about this stuff, is that they're soooooooo anxious to allow these crooks to get off the hook. It's perfectly obvious, by Lewis' own reporting, that the people at Goldman Sachs and AIG committed crimes, but the only "punishment" that Lewis would want to inflict is to ask them to, uhhhhhh, "explain what they thought they were doing."

Somewhere in the 60 Minutes interview, I heard Lewis complain that regulators were too taken in by elites at Goldman Sachs, and so they didn't do their jobs. Well, it's hypocritical of Lewis to make that complaint, since he's as bad as the regulators were. In fact, Lewis is worse, since he has five years of retrospective reporting to look at, and he's still being played for a fool.

However, in 2005, I did know that we were in a housing bubble that would crash, and I said so many times. I also quoted Alan Greenspan and others saying much the same thing. That fact that we were in a housing bubble that was going to collapse meant that all the CDO computer models were wrong, and the people at Goldman Sachs and AIG must have known, or should have known, that the computer models were wrong, and that therefore the CDOs were defective.

Today, in 2010, we're still in a bubble. I've said it many times, and I've quoted people like Niall Ferguson and Elizabeth Warren who have also said so, though in different ways. And exactly the same kinds of illegal practices are going on today, being perpetrated by exactly the same people, who are still making fat commissions and bonuses by screwing ordinary investors, who are going to lose everything when the bubble collapses.

Tension grows between France and Germany over Greece bailout

According to leaked information published in the Austrian newspaper Der Kurier, summarized by EuroIntelligence, Germany and France have agreed that a 55 billion euro bailout of Greece will be needed by the end of 2010, that Germany would contribute 20 billion euros, France would contribute 10 billion euros, and other countries, except those that are in trouble (Spain, Portugal and the UK) would contribute according to their ability.

This agreement will be put to the test very quickly, as the graph shows that some 20 billion euros of debt payments will be due in April and May.

Since Germany's Chancellor Angela Merkel has said many times that there would be no bailout of Greece, it's not surprising the strains are showing already, in the form of what the Germany magazine Der Spiegel describes as "Germany-bashing." According to the article, " French Finance Minister Christine Lagarde has urged Germany to rein in its trade surplus, arguing that its export strength is hurting weaker economies. The German government is bracing itself for a fight."

I can't resist bringing back one of my favorite pictures from the past -- the photos from June, 2005, in the article "Acrimonious European Union summit ends in crisis," of Jean-Claude Juncker, Tony Blair, and Jacques Chirac. At that time, the argument was over agricultural subsidies for France -- France wanted more of them, and Britain wanted less of them. In the end, about six months later, Tony Blair caved in to Chirac, in order to end the dispute.

This bailout of Greece situation looks like it might be equally contentious. 55 billion euros is a lot of money, and everybody is hopin' and prayin' that the new stock market bubble is going to continue growing, and will not burst. If that turns out to be wrong in 2010, and the chances are that it will be, then there's going to be a lot more acrimony.

Warning: Your bank won't protect you from online banking fraud

In a recent survey, 55% of small businesses reported experiencing fraud in the last year, with 58% of the fraud enabled by online banking activities, according to Dark Reading.

Many small businesses assume that banks will restore funds that are lost in through online hacking of the banks' online banking sites, but that's not true, according to the survey. It found that 57% of the respondents that have experienced a fraud attack were not fully compensated by their banks, and 26% were not compensated at all.

This comes at a time when banks are pushing their credit card customers very hard to agree to cut off paper statements, and require the customers to go online each month to get a "paperless statement." This supposedly "saves the environment," as the wonderfully civic-minded folks at the bank might say, but it also removes a monthly reminder to pay your credit card bill, and makes it more likely that the bank will have an excuse to raise your interest rate to 30% so that they'll have more money to pay themselves million dollar bonuses.

Now, thanks to this survey on online banking fraud, there's an even more important reason not to end your paper statements.

Israeli-US ties continue to deteriorate over settlement issue

The issue of new Jewish settlements in the West Bank is turning more into a bitter dispute between Israel and its Western allies.

America's unwavering support for Israel comes out of a cultural contradiction in the country's ideals, early in the 20th century. America was supposed to embrace the ideal of religious equality, but in fact America was really a Protestant nation, as I explained several years ago in "President George Bush talks about a 'Third Awakening,' but he has his history wrong."

However, Protestants, Catholics and Jews became united against their common enemy, Communism, after the Bolshevik Revolution of 1917. And then, after WW II, America and many other countries supported the creation of Israel in 1948, after becoming aware of the horrors of the Holocaust.

But now the London Times is saying that, for the first time, Israel's value as a strategic ally is being questioned by America. The article quotes General David Petraeus as openly questioning Israel's value as a strategic ally, because the failure to achieve an Arab-Israeli peace deal is the best recruiting tool for militant Islamists.

From the point of view of Generational Dynamics, this analysis is completely wrong, of course. Militant Islamist terrorism would be growing with or without an Arab-Israeli peace deal, and relations between Arabs and Jews would be deteriorating just as surely (and probably more swiftly) if Israel were not America's ally.

Nonetheless, America's support of Israel, no matter how irrelevant, has become a convenient target of blame for many of the problems of the world, and that's likely to get only worse.

On Monday, Israeli Prime Minister Benjamin Netanyahu firmly rejected any curbs on West Bank settlements. Reuters quotes him as telling the Knesset: "For the past 40 years, no Israeli government ever limited construction in the neighborhoods of Jerusalem," referring to areas of Jerusalem that Israel captured in the 1967 war. This statement is an open rejection of the Obama administration's demands.

The Obama administration has now been publicly humiliated two or three times over Israel's settlement issue, and the Palestinians are now firmly refusing to talk with the Israelis unless the settlements are canceled. The Israelis are saying, just as firmly, that the settlements are going to proceed.

Generational Dynamics predicts that there will be a major new Mideast war re-fighting the 1948-49 war between Jews and Arabs that followed the partitioning of Palestine, and the creation of the state of Israel. There will be no peace agreement.

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There are raucous Awakening era protests and riots going on in Thailand right now, with 100,000 protestors wearing red shirts in support of former Prime Minister Thaksin Shinawatra. The protestors are even collecting containers of their own blood, to splatter on Thai government headquarters. What fun! AP

Men over 50 are significantly more absent-minded than women over 50. That's why men so easily forget birthdays, anniversaries, and even friends' names. Guardian

Generational Dynamics Web Log for 16-Mar-2010
16-Mar-10 News - Historic Israeli-US ties deteriorate

Author Michael Lewis pins the blame for the financial crisis

Tension grows between France and Germany over Greece bailout

Warning: Your bank won't protect you from online banking fraud

Israeli-US ties continue to deteriorate over settlement issue

Additional Links

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	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 16-Mar-2010 16-Mar-10 News - Historic Israeli-US ties deteriorate

Author Michael Lewis pins the blame for the financial crisis

Tension grows between France and Germany over Greece bailout

Warning: Your bank won't protect you from online banking fraud

Israeli-US ties continue to deteriorate over settlement issue

Additional Links

Web Log Pages

Generational Dynamics Web Log for 16-Mar-2010
16-Mar-10 News - Historic Israeli-US ties deteriorate