keyholez:

 

Not that anyone updates on the evidence, but, for the record, John Hemptonhas a good bit on this:

…I can’t help but agree [with the sign] except this is not what happened in the Abacus case. The Abacus security was an entirely synthetic security. It was not filled with loans that were intentionally picked, it was loaded with derivatives that someone thought were most likely to be defaulted on.

That is an important distinction. If Goldman had created a security filled with bad loans and sold them there is no way that the client would be able to work out that someone was betting against the loans.

But that is not what happened. It was filled with derivatives where it was obvious that a financially sophisticated counter-party was taking the other side. Indeed what the security was was the reverse side of a bundle of bets against mortgage securities bound up by Goldman Sachs and the simplest understanding of it revealed that fact. Sure the buyer did not know it was Paulson taking the other side of the bet. (Indeed, given Paulson’s latest run the fact that was Paulson neither adds nor subtracts from the case for buying or not buying the Abacus bundle.)

I think Goldman Sachs was done here unfairly (although it is hard to imagine it happening to more deserving people). Anyone who was financially sophisticated (and IKB certainly portrayed themselves as sophisticated) should have realized there was an opposite side to that bet and that someone had deliberately taken the opposite side with respect to every derivative in the bundle.

Now contrast this with what happens when I make a short sale. I borrow a security from a broker which is identical to any other security with the same cusip number. I sell it in the market. The person on the other side purchased a security and they have no idea whether they purchased it from a long or a short.

People who buy securities from me in the regular securities market are at a disadvantage to IKB. IKB knew there was someone making the opposite bet. When we make money short selling (and we have made plenty) the people who lose have no way of knowing that Bronte/John Hempton was on the other side of the bet.

I am (in part) a short-seller. I regularly try to stuff the market with securities that are “intentionally picked” as “most likely to be defaulted on”.

Where is my sign?

This reminds me of an email exchange I had with someone in the financial industry about a comment made by Peter Thiel:

Yes. I think there is an incredible faith in capitalism–that you can put any burdens on business,  and people will just work. It’s like people are hardwired to make money and there’s nothing you can do to change that,  irrespective of politics. In that sense it is an incredible faith in capitalism that I don’t quite share.

I had an immediate, uncritically negative reaction to the implication that if the state leans to heavily on the private sector that it will drive people away from working, to whatever extent. I think this is because of how profoundly that sentiment conflicts with some core, unstated principles of much of the political left. It implies that the “tax the rich” solution might cause more harm than good, even to the people calling for it. I wonder how even suggesting that possibility would go over with the people in this photo.

When I expressed as much, my analyst friend responded: 

I agree that there is some strong counter-programming at work, though if you cornered Matt Yglesias or whatever he’d definitely pretend to believe that yes taxes can maybe causes problems eventually at some point in theory but we’re not there yet.

This bit from “John Hempton” is similar in that he is putting forward an idea that is really dangerous to nascent ideology of the Occupiers: There might not be the conveniently scapegoat-able or easily excisable chunk of bad, super-greedy capitalism. And even worse, the elements that seemed so ripe for criticism (“complex financial instruments that are not well understood”) might be even less morally suspect than more run-of-the-mill financial activity. Maybe “well, they should have known better” is a valid response to some of the accusations that banks are mean!

As with the “more taxes might make problems” concession, I think serious people will also “pretend” to agree that financial markets probably have their place in organizing labor and capital at least for the time being? If for no other reason than, as Mr. Thiel put it in the same piece:

I think it’s also that the left in the U.S.,  the Democratic Party,  is not socialist in the other sense in that there is actually no plan for the future. What socialism and communism was characterized by were five-year plans,  these development plans of what you’re actually going to do. What’s remarkable is how little of a plan there’s going to be.

In any case, it’s no accident that the accusation in the sign is “it is wrong to” and not “it causes net fewer utils to allow people to”. A lot of the current moment’s criticism of “the system” is based more on moral reasoning than on anything else. I think that, in turn, is undergirded by a conviction that rules and principles that seem most fair and just must be the ones that produce the most desirable outcomes.

There is an alternative, which is to defend the proposition that inequality is itself a bad, that It would be better for us both to have a little than for one of us to have a medium amout and the other a lot. I don’t think that’s necessarily unreasonable (and there are more generous ways to phrase it) but it’s certainly not as comfortable a posture as implicit utopian socialism (as long as it remains implicit).

However, for (what I suppose passes for) practical political purposes, our friends in Zuccotti park can’t really afford to give ground on any of this. “It is well known” that at least part of (or one way to understand) what is going on is an effort to pull the political discourse back away from the nihilistic abyss of Tea Party. That crew isn’t about to start admitting that fixing a bridge here and there with public money might be a good idea or anything. It’s been, what, two years and that “movement” hasn’t moderated. If the Occupation is going to be any sort of counterweight they can’t start getting into reasonableness after just a month or two.

So, um, anyway, I don’t think the fellow is going to get his own sign.