Atlas Shrugged: The Mocking

Monday, April 19, 2010

Lauds (Morning Prayers)

As we have seen, Goldman, Sachs is being sued by the SEC for fraud and Megan McArdle is defending them, both in The Atlantic and The New York Times. Let's take a look at her (second) defense from The Atlantic. It's a marvel of mitigation from the Queen of Failure and Defender Of The Faith Banks.
There's been a lot of indignant chatter about how Goldman Sachs had been selling investors long positions that they were short on, and how this represented a conflict of interest, or something.

The word she can't find is fraud. "Or something" pales in comparison, as if the banks have been naughty but Nanny can't quite figure out what they've done behind her back. The "indignant chatter" is also known as sued for fraud. McArdle knows this because she linked to a Wall Street Journal about the suit.
This rather fundamentally misunderstood the role of a market maker, which is, after all, to take the other side of the trade.

Because she (presumably) read the article she linked to, McArdle knows that there is no misunderstanding, but as she wishes to mitigate the actions of Goldman, Sachs, she lies, pretending that she does not know GS's role in the fraud. It wasn't a matter of taking the other side of the trade, it was a matter of hiding knowledge that the CDO it sold was worthless.
On the other hand, if the SEC complaint filed today holds up, these complaints will turn out to have a certain . . . truthyness . . . to them:

Truthyness, according to the Urban Dictionary, means "when you are meaning to tell the truth but are actually lying." Truthiness means "a "truth" that a person claims to know intuitively "from the gut" without regard to evidence, logic, intellectual examination, or facts." So McArdle is actually insinuating that the SEC is lying. McArdle gives a quote from the SEC complaint, then says:
One wants to be cautious about saying that Goldman Sachs is definitely guilty.

Of course one does. McArdle is not a heretic, and is willing to give her religious authorities the benefit of the doubt. Just as Kathryn Jean Lopez will always throw the full weight of her support behind the pope, McArdle will defend her faith to the death.
Financial crises produce immense political pressure for securities regulators and attorneys general to go head-hunting, and the cases often turn out to be weaker than they seem once the defense gets a chance to speak.

Everyone is out to get the Catholic Church banks! It's anti-bank bigotry! What about the freedom to worship, huh? It's in the Constitution and everything!
The case against two Bear Stearns hedge fund managers, for example, turned out to hinge on horrific-sounding quotes that had very clearly been ripped out of a context that totally changed the implications. Which just goes to show how heavy the pressure is on prosecutors to make these cases.

It's just prejudice. And politics. Democrats hate banks and Obama can't wait to punish his second largest presidential campaign contributor, the investment bank that gave him $994,795.00.
But it certainly sounds as if the SEC has the goods here. Felix Salmon has gone through the pitchbook, and pronounces it free of any indication that a third party with a strong economic interest in the transaction was picking the securities to be included. I will be interested to hear the defense rebuttal. It should, at the very least, be entertaining.

It's not a matter of national interest, it's just entertaining petty gossip.
Was anyone hurt by it? That's less clear--at that point, the market still had a bit of froth left, and people might well have bought the securities if Paulson's interest had been disclosed.

Nothing to see here, move it along. It's not like the article McArdle just read said:
According to the SEC, Mr. Tourre wrote in an email shortly before the bonds were sold that "the whole building is about to collapse anytime now." He described himself in the email as the "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"

But let's not be hasty. Just because Touree's email said he knew the CDO was worthless doesn't mean people wouldn't have bought it if they knew it was worthless. Perhaps people just enjoy giving a billion dollars to obscenely wealthy crooks.
But that doesn't matter.

It might matter to the people who lost that billion dollars.
It's hard to imagine anyone making an argument that Goldman didn't have an obligation to disclose this information--and the fact that they failed to disclose seems to indicate that Goldman, at least, thought that the information would adversely impact the sale price.

Yes, it is hard to imagine, which makes it hard to explain why McArdle is trying to excuse Goldman's actions under the circumstances. But McArdle is hard to explain under so many circumstances.
I suspect this case will get a lot of public traction. At this point, what galls people is not so much the stupid behavior that led to the bailouts, but the blatant self-dealing that seems to have gone on.

Not crooked behavior--stupid. The people that had to have million-dollar bonuses because they were Too Smart To Fail are now too stupid to be punished for their illegal actions.
Unfortunately, much of that self-dealing is not actually illegal . . . so when we find an example that is legally actionable, the public and the court system are bound to jump on it with both feet.

I just can't believe that CNBC hasn't snapped this woman up yet. Sure, she didn't work at Goldman, Sachs like Jim Cramer and Erin Burnett, but surely her obsequiousness in its time of need will count for something?

8 comments:

KWillow said...

Rant about the evil tenant who -legally- wouldn't allow her to examine his home; but excuse and minimize criminal deeds of the bankers who destroyed the entire World's economy.

Straining at a molecule while swallowing a black hole.

Anonymous said...

you've put your finger on just how she minimizes things--"chatter" and "gossip" and emotional blackmail and "stupid behavior" rather than blatant fraud, double dealing, and looting.

aimai

Lurking Canadian said...

Straining at a molecule while swallowing a black hole.

Like the man said, comedy is somebody else falling down the stairs; tragedy is you stubbing your toe.

Of course, most of us aren't paid to whine about our stubbed toes and laugh at other people's broken necks, so there's that.

I'd like to send her a copy of Orwell's essay about the decline of English being due to the defense of the indefensible. Do you think she'd get it?

Ken Houghton said...

"Was anyone hurt by it? That's less clear-"

Tell that to those who bailed out IKB, one of the two purchasers of that security.

Anonymous said...

The "was anyone hurt by it" comment really blows my mind. Does she think that its all monopoly money? Does she think its art fraud and the only people hurt are billionaires who foolishly bought a fake rembrandt? Does she not understand that even the art market/bond market/mortgage market represents stored savings and assets that, when they are lost or transferred, are lost or transferred?

aimai

satch said...

Megan really wants that spot on the Wall Street Journal editorial page, doesn't she.

Susan of Texas said...

She's earned it, by lying above and beyond the call of duty.

Batocchio said...

Was anyone hurt by it? That's less clear--at that point, the market still had a bit of froth left, and people might well have bought the securities if Paulson's interest had been disclosed.

Yes, your honor, I shot him, but his drinking would have killed him anyway.

Or... Hypothetically, their lying might not have affected absolutely everyone taking that deal, so the lying doesn't matter. What's a little intent to harm from rich people, anyway?

Similarly, hypothetically, health care reform might lead to horrible things! There is no data on how other countries handle health care.

Kant's categorical imperative suggests both that she's wrong and that she should be fired.