When ‘reporting’ is replaced by opinions
Time magazine contributors Andy Serwer and Allan Sloan give us an article in the latest issue meant to explain what is going own with the current financial crisis (better explained here). Serwer and Sloan, for all their “combined 65 years of writing about business” can’t seem to produce any coherent or unbiased reporting on this crisis and the reasons for it. They just fall back lazily on an argument that has been circulating the last few days, placing the blame at the doorsteps of the free market and deregulation (neither of which is the true culprit). As a matter of fact, they begin a supposed explanatory portion of the article entitled “The Roots of the Problems,” then proceed to NOT giving us ‘the roots of the problem.’
The Roots of the Problem
How did this happen, and why over the past 14 months have we suddenly seen so much to fear? Think of it as payback. Fear is so pervasive today because for years the financial markets — and many borrowers — showed no fear at all. Wall Streeters didn’t have to worry about regulation, which was in disrepute, and they didn’t worry about risk, which had supposedly been magically whisked away by all sorts of spiffy nouveau products — derivatives like credit-default swaps. (More on those later.) This lack of fear became a hothouse of greed and ignorance on Wall Street — and on Main Street as well. When greed exceeds fear, trouble follows. Wall Street has always been a greedy place and every decade or so it suffers a blow resulting in a bout of hand-wringing and regret, which always seems to be quickly forgotten.
In this uninformative missive they expound with misinformation claiming that the culprit is–AHA, YOU GUESSED IT!–evil evil ‘deregulation’ and fat cat greed. Although I do not doubt there is an ample degree of greed involved, stupidity and arrogance should also be given a fair shake as equal partners in this mess. However, as my colleagues John Berlau (and here and audio here) and Hans Bader point out, there are other more culpable factors to blame as well (and also why a bail out won’t work). As for the free market and deregulation–those nasty little devils–no such free-wheeling environment existed to justify them getting the blame for this one (sorry EU).
Serwer and Sloan offer us nothing more than an opinion piece presented as reporting the facts, and they cannot seem to even mask there disgust of those lousy Wall Streeters long enough to get through an entire article.
This latest go-round featured hedge-fund operators, leveraged-buyout boys (who took to calling themselves “private-equity firms”) and whiz-kid quants who devised and plugged in those new financial instruments, creating a financial Frankenstein the likes of which we had never seen. Great new fortunes were made, and with them came great new hubris. The newly minted masters of the universe even had the nerve to defend their ridiculous income tax break — much of the private-equity managers’ piece of their investors’ profits is taxed at the 15% capital-gains rate rather than at the normal top federal income tax rate of 35% — as being good for society. (“Hey, we’re creating wealth — cut us some slack.”)
On the topic of ‘tax breaks’ for those ‘dastardly’ private equity managers, they just lie–managers do not get a tax break, their income results from investment dividends which are taxed at 15% just like everyone else’s dividends are who invest in the market. This includes your pension, your mutual fund you have sacked away for retirement, etc. It is also quite ironic that the least regulated of the financial industry, hedge funds and private equity, are doing fine despite the mess (and some were even wise enough to see it coming).
The financial collapse of highly-regulated financial entities (also here) is being used as a wedge to pry off the bits of free enterprise that still exists in this country. Free-market capitalism’s good name has been tarnished by George W. Bush and most of the Republicans in Congress, who spout the rhetoric, but legislate in the exact opposite fashion. (But all this is, of course, opinion–which I am at least not attempting to pass off as journalistic reporting).
Will this bail out be the harbinger of America’s slouch toward socialism? Who knows?! It won’t be good though, whoever takes the White House. One guy will just get us there quicker than the other.