The Fourteenth Banker Blog

May 15, 2010

That Pesky Criminality Topic

Filed under: Running Commentary — thefourteenthbanker @ 11:44 PM

This Huffington Post piece with link to NYT brings up again the issue of what type of unfair dealing rises to the  level of criminality.   In this case the Eastern Florida Financial Credit Union was brought down by poor investments made very late in the game in toxic CDOs. What the Inspector General for the National Credit Union Association does not reveal is who peddled the CDOs to the Credit Union.  An area for further exploration would be whether the seller of the CDOs knew they had an unqualified buyer (in fact, not necessarily at law), whether the seller gave any consideration whatsoever to this fact, how the selling business unit and individuals were compensated, and what the general motivational system in place was.  Society needs to know these facts so that buyers can beware of whom they do business with and legislative and regulatory bodies can determine what laws need to be on the books to prevent predation and to bring into the rational framework of decision makers an understanding of the personal risk they take when robbing unsuspecting marks.

The Inspector General’s report cites mismanagement of the Credit Union.  They grew too aggressively and took risks they did not understand. I can go so far to say that the Credit Union probably suffered from the same ambition and greed that pervades the system, with stupidity added on as a bonus.  They were not the “The Smartest Guys in the Room”.  That is also disturbing. But it does not excuse the shark that sold them junk paper for more than it was worth on the day of sale.



  1. “They took risks they did not understand”

    Besides ascertaining that the paper the CDOs was rated triple-A or close, at the time they purchased it, can you explain to me what other risk they were supposed to understand? Their own regulator used the credit rating agencies criteria to determine their own capital requirements.

    All in all it was first and most the criminal stupidity, innocence gullibility or whatever you want to call of the regulator, played on by some few immoral or equally stupid securities manufacturers, and the lack of good governance in the credit rating agencies that is blame for this… most others were simple civil casualties who happened to be close and believed in what the gurus told them.

    Comment by Per Kurowski — May 16, 2010 @ 5:55 AM | Reply

  2. Exactly – the regs have been too lax for too long. The laws need to be less amorphous – because we know the hucksters will always find a way to game the system, why make the system too easily gamed? While I know we can’t protect everybody all the time (especially from human stupidity and gullibility), it seems to me that we, as a society, (since the Ronnie Raygun years anyway), have applauded the crooks and wagged our fingers in the faces of the victims, with a self-righteous, “Shame on YOU!” Maybe it’s because we unconsciously know “there but for the grace of God go I”?

    Comment by Sandi — May 16, 2010 @ 7:23 AM | Reply

  3. How many hundreds, even thousands, of these stories are out there. We now have Dusseldorf, Florida too. Are the big banksters so clever and smart they will always trash the local best and brightest with all the proper credentials to buy securities with other peoples money? At the least, should we conclude that the educations of these mass numbers of financial professionals was and on a continuing education basis sheer garbage? Then, I take experience has taught these financial professionals nothing. Also that the education and experience of the big boy banksters enable them to push their local kin around to the being consistently the best marks, as a group, of all time. And globally too ?

    Yet, these big bank banksters did a deadly trashing of their own banks too. How do you reconcile that these big banksters would have killed themselves had they not been rescued? Yet, these same people could set up masses of their fellow financial professionals for the sting for at least a generation?

    All this smells of mass delusion given that we apparently have the same group at all levels doing the same thing that trashes them all. Fundamentalists all here of the same beliefs?

    Comment by Jerry J — May 16, 2010 @ 1:12 PM | Reply

  4. Jerry J, that is exactly what it is…..mass delusion. I work in this industry and I can tell you first hand, other than tightening credit and starting to look for ways to downgrade loans that can then be shipped off to the vulture groups, NOTHING has changed in banking since the crisis.

    Not a single executive says how can we help the country, the economy? It’s all about how can we extract more and more and more from the customers, from the employees and support the communities we work with as little as possible.

    It is mass delusion when everyone starts to beleive that a better world, a better working environment can be created by trampling over each other, by creating a system that they know for a fact is gamed by their employees, causing mass cheating and destruction of morals.

    The so called leaders in this country have managed to convince people that all of this falls under the umbrella of “Capitalism”. The gullible folks have no idea what kind of behind the scenes corruption goes on to strike favorable laws that benefit the so called “Capitalists/Bailoutees/Con Artists.

    Comment by Vocalbanker — May 16, 2010 @ 1:53 PM | Reply

  5. I took the Eastern Florida Financial Credit Union to be the example for Dusseldorf, Florida. Michael Lewis in his book ” The Big Short” often quotes people about where they dumped all their garbage CDO’s. Several times the place they dumped the junk was quoted simply as ” Dusseldorf”. You also run across the same expression elsewhere. Comment about fools buying ” bad” sovreign debt like in PIIG states also lays the abuse on Germany. Lewis , for example, discusses the cloddish impressions that lower pay than Wall Street employees of the rating agencies make on the street denizens. Marks to be stung.

    More than anything Wall Street stung itself. Even if they get out of their near term predicaments, they still have to collect the receivables they still carry on their balance sheets. It is all about retail debtor cash flow no matter how complex or derived the claim on someone is on the books. Every asset of a receivable asset on the books of the big banks and shadow system organizations outside of pure sovereigns with their own currency require sturdy retail cash flows from retail claims on debtors. You can unload your junk on others , but absent stable retail debtor cash flows the system comes down. We are still in the dump my junk on someone else phase or failing that getting bailed out to cover the losses due to uncollectability.What could be a worse claim on someone in mass failure than holding a receivable generated by a CDS?

    And these people are smart? Where were all the university guru’s in all this? Buried in never provable theoretical concepts instead of the real world. But then, is an academic without long field experience really worth much? Look at ” Fabulous Fab” at GS. He understood the problem from smarts and experience. He did what the system required him to do. Go for his money. Yet, all you hear about is rancid schmaltz about owing others in a world that is innately Darwinian in the US. Only the deluded children of upper middle class types would be so foolish as to adopt idealizations to the pretended exclusion from clawing your own wealth. What could possibly be more spoiled than the deluded idealists pumped out today. It is understandable that the idealists should carry the views they do but they carry the view by excluding the realities…. that is until the reality bites them

    Look at the hard ideas floating around. Social Security will never be a reality to the younger person. There will be medical help only if you are covered by an insurance plan. Taxes are theft. The state is a natural proven failure . That is the state fails by it’s own internal inconsistencies. The corporation, a total creature that exists only within a state context, is supreme. Note the incongruity. It seems obvious to me today that no matter what you do, it is nearly impossible to save for retirement under circumstances of financial deceit that have long been a hallmark of financial capitalism. How can you save from employment with no rational rates of return that are stable over the long run. I think here of that old long term historial study that the natural retail rate of return is 3 % plus inflation.

    Every avenue of stability looks to be foreclosed from the self destuctive nature of financial beliefs. Is it no wonder those that smarten up go for grifting? It is everyone for himself period. That view is fatal to any high tech society.

    Comment by Jerry J — May 16, 2010 @ 3:44 PM | Reply

    • Never promised a bed of roses. Darwinian Evolution at more advanced levels requires some cooperation within the social structure. So, there has to be a way to re-engage that part of humanity. I’m not sure that things like Social Security helped our thought processes because they made us believe we were independent. We aren’t. When Social Security is cut back, our interdependence will be more essential to survival.

      A famous teacher once said, “I do not believe in a fate that falls on men however they act, but i do believe in a fate that falls on them unless they act”.

      We have to fix this.

      Comment by thefourteenthbanker — May 16, 2010 @ 5:23 PM | Reply

      • Two things – One – Darwinism has been misunderstood for years, thanks to the lazy MSM, I suspect. It was never “survival of the fittest”, which we have chosen to mean the biggest, strongest, swiftest. It is survival of the most adaptable – those who cannot adapt, perish. So-called “social Darwinism” has come to mean that it is not only ok to step on your fellows to climb to the top, it is the surest sign of superiority.
        I agree with Fourteenth, that we must rekindle the sense of community that once guided our behavior. As far back as the ’70s, when it was noted that we were a more mobile society, less rooted, we were already seeing the bonds of community fray and break. In many parts of the country, something as simple, and yet profound, as the spread of air conditioning, contributed. No longer do we sit on our front porch to take the cooler evening air, and in the bargain, chat with our neighbors as they do the same. Heck, now we don’t even KNOW our neighbors. And why would we? They will only be here a short time, then move on, so the thinking goes.
        Now we have the 24/7 news cycle and blogs that allow us to only hear and respond to like-minded people. We live in little, self-created bubbles. I guess I’m weird- I’ve lived in the same house for 20 years, have more or less the same neighbors. Most of my friends don’t live as I do.
        As for Social Security, I think that it can and should be a point around which we gather, not separate. It can, and should be, presented as the benefit to society as a whole, that it is. As Jerry pointed out, it is becoming increasingly difficult to save for our retirements, what with wages flat to falling, no return on “safe” savings, like CDs and money markets. (Note I am not suggesting we look to SS as our entire retirement package) Depending on how close you are to retiring, the market may be too much of a crap shoot to put your money into. And let’s not even talk about the dearth of personal financial education out there. To those who would say it isn’t the school’s job to teach it, I say, yes, it is – in econ class, in whatever took the place of “home -ec” (I’m dating myself – LOL). Many parents – especially working-class parents – have never learned the basics, and you can’t teach what you don’t know. I think it serves society overall to have a populace educated in how to handle their money, as well as the three Rs. But then, I am one of those idealists…………………

        Comment by Sandi — May 16, 2010 @ 7:33 PM

      • Yes, we need to fix the problem. It is obviously not written in stone that any economic system is guaranteed from a Darwinian perspective. Nature will fix the problem of economic cooperation. If there is a social Darwinist element there is also the aspect discussed by Piotr Kropotkin in his Mutual Aid. My own view is that both concepts, as taken by most students of the subject, is too narrow and certainly tied to 19th century observations. Nature will cure the problem one way or another by process of perceived failure and ruthlessness tempered by successes and compassion that aids local survival. That will be most scary. Just today there was a piece on Business Insider, I believe, about ” It is now or never for the American Empire”. To some , the very attempt would seem quixotic. But, the attempt considered as Darwinian, will be attempted before the present elites of the US go down for a final count. It may be a mere pimple on the back of history and never occur except as elite blather or it may be successful. One thing is sure though. American society is almost totally saturated with adversarial do good idealism that when burned out will elicit a Darwinian response out of necessity. Idealism is classically criticized as leading to fanatacism. Well, idealism destroyed leads to counter reactions… certainly, the US mind set will tend to get ugly as it did in Europe in the thirties.

        An interesting way to look at the problem might be to look at societies that have persevered for millennia. Hindu India is an example. Might there be a cyclical nature to what has happened in the US along the lines of the Indian thinker P.R. Sarkar so dear to the heart of the economist Ravi Batra? Within the confines of Sarkar’s loose Social Cycle Theory the leeway exists for local solutions. Sarkar’s ideas are not exclusively economic or special cases like Marx or the classical capitalist theorists. Nature is too messy for neat idealist answers.

        Some mean shit will accompany any positive end result and no society will inflict on itself what it is capable of successfully short term inflicting on others. We have watched just such a result develop in the last forty years among right wing elites, just as really left wing elites have been considered moronic. We are , after all, a right wingish nation that hates abiding by laws that might apply to us. It is the very nature of our adversarial legal system. Rectitude required for the adversary, latitude required for ourselves. Then we butt heads over your evil and my goodness.

        A complex system fostering being long lived requires a way of accumulating for old age. The tradional version has the family having veneration for the old. Every really long lived society seems to follow that route. What better example than China or Japan. Indeed, the concept seems universal . Yet, the US desires to not have such a system from any observed perspective based on what has happened. Yet, they all want to live to be very old in teen like circumstances. My Mom just entered a nursing home as the oldest person in the place. Her fellow inmates are mostly close enough to my age to be very scary. Yet, I thought the place was filled with teen age types based on the way they talked. Even from the wheelchair. Her sister is going on 97 and could easily be the 98 year old getting a Master’s in History. These people were born during the Great War. Nicholas II, Tsar of All the Russias was still reigning. We are inundated by a generation that survived the 1919 Flu. But, the sick and downers at the nursing home were seemingly all Silent’s. They are a mere shower compared to the storm coming with Boomer’s. Some Boomer’s understand the situation perfectly well and understand what they must do.

        Right now there is really no viable way for a 22 year old to accumulate for old age successfully. So yes, we better fix it. Empire of the Western Sun underway in the next generation?

        Comment by Jerry J — May 16, 2010 @ 8:10 PM

  6. Regarding venerating the elderly and therefore caring for them within the family, I suggest Elizabeth Warren’s “The Two-Income Trap-Why Middle Class Parents are Going Broke”
    I believe this is the book where she makes a very convincing argument that in the 70s, as wages for white males began to stagnate, more families became two-paycheck households, which led to a few unintended consequences, not the least of which is that there was now no one home to care for Grandma.
    I know only too well the frustrations of the “sandwich generation”, as I had a high schooler at the same time my mother required more care and attention, and I was working.

    I also wonder what is to become of the newly minted college grads who are facing daunting employment challenges, often with thousands in student loan debt. When you start out $20K+ behind the 8-ball, you never really catch up.

    Comment by Sandi — May 17, 2010 @ 10:33 AM | Reply

  7. […] here.  Please see previous post, and post, and post and […]

    Pingback by No Criminal Charges Against AIG Execs « naked capitalism « The Fourteenth Banker Blog — May 22, 2010 @ 12:01 PM | Reply

  8. […] and in favor of major white-collar crimes that are clearly larceny on a greater scale.  Note also this, and this, and this. Leave a […]

    Pingback by Somebody is Waking Up on the Legal Front « The Fourteenth Banker Blog — August 18, 2010 @ 7:56 AM | Reply

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