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The Scam Wall Street Learned from the Mafia

rollingstone.com

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Re: The Scam Wall Street Learned from the Mafia

#51

Post by digitalengineer »

cdooh wrote: post #42

Here in Kenya our politicians are the thieves cheating the public out of millions, in America it seems your bankers are the crooks

The scam could only continue with the aid of politicians. Big banks told their employees to donate money to the politicians (and later paid them back the money they 'donated'). Or they gave away 'gifts' like Superbol Tickets and limo-treatments. The politicians receive the money/gifts after which they will "advice the City or County" what bank is to handle the swap-deals. There turned out to be $66 return for every dollar the banks 'invested' in the politicians.

Re: The Scam Wall Street Learned from the Mafia

#53

Post by lolcraft »

leot wrote: post #5

Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and explanations of large bank behavior are likely to be the ones closest to the truth.

Well, the defendants also admitted doing all this, but still didn't though there was anything wrong about it because they were expert investment bankers. That's quite amazing too.

Re: The Scam Wall Street Learned from the Mafia

#54

Post by 16s »

mjwalshe wrote: post #50
kahawe wrote: post #43

Earlier quoted context omitted.

> Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. I was sort-of witness to a shouting match between a well educated son and his hard-working working-class rest of the family over the fact that banks give out let's say ~ten times as much as they actually have. They called him stupid, outrageous and how could any company possibly do this and they can cer…

But presumably these "working class" peopel had a morgage that is highly leveraged - did they not see the diference?

33% (or slightly more) of homeowners have no mortgage at all.

Edit - Some sources:

http://www.ritholtz.com/blog/2012/04/debunking-the-housing-r...

http://www.irishexaminer.com/ireland/kfsneyqlidgb/rss2/

Re: The Scam Wall Street Learned from the Mafia

#55

Post by roc »

mjwalshe wrote: post #50
kahawe wrote: post #43

Earlier quoted context omitted.

> Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. I was sort-of witness to a shouting match between a well educated son and his hard-working working-class rest of the family over the fact that banks give out let's say ~ten times as much as they actually have. They called him stupid, outrageous and how could any company possibly do this and they can cer…

But presumably these "working class" peopel had a morgage that is highly leveraged - did they not see the diference?

That's precisely it. Normal people interpret loans as loans. Bank has money. Bank loans money. Bank makes interest to get more money.

They're participating in the system, and not only do they have no clue how it works, but believe it works in a way that it hasn't for generations.

Re: The Scam Wall Street Learned from the Mafia

#56

Post by namdnay »

mafro wrote: post #35
tumult wrote: post #31

Matt Taibbi is awful. This article, and all of his others, are hyperbolic demagoguery. This one is particular is so bad that I can't even bring myself to tear it apart line by line. You're doing yourself an injustice by reading it. Unless you take pleasure in misinforming yourself and becoming angered over falsehoods, you're just playing into the hands of a particularly nefarious and persistent rabble-rouser.

I'll give you that 75% of this article is unnecessary hyperbole which adds nothing to the central message. The central message is very interesting though.

Bear in mind that RS is a magazine, not a newspaper. It's not just supposed to inform you, it's also meant to be a nice read.

Re: The Scam Wall Street Learned from the Mafia

#57

Post by jbooth »

tedunangst wrote: post #26
leot wrote: post #5

Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and explanations of large bank behavior are likely to be the ones closest to the truth.

There are people who think three bid systems actually work? Everyone I've ever talked to about three bid systems knows they mostly exist to give a faint dusting of propriety to the fact that somehow the mayor's brother in law is always the guy winning the contract. Are there roads in your town? Do you think they were paved by the honest lowest bidder?

You're pretty far off, here.

I used to be in an elected position and would sign off on stuff like this. The "lowest bid" thing does actually tend to be enforced, at least where I was, and it was a huge pain in our butt for totally different reasons.

You're presuming that every deal is a gladhanded corruption thing. Sometimes, but not most of the time. Often we would know what we wanted, have a good deal for it, it's not a very significant purchase (like a $500 piece of equipment or somethign), but we have to spend hours of employees' time getting ahold of 3 options so that we can get the one we were going to get anyways.

The way worse situation is on big ticket items, like your example of roads or other big capital projects. Where I was they are actually done by the lowest bidder, by law. But we'd wind up paying way more than that, because in order to become the "lowest bidder", the contractor would have to unrealistically underbid and then run way over on the contract. At that point, we'd be screwed and it's usually a better idea to pay a little more to finish the project than to sue and have a half-finished project sitting there while you burn 6-7 figures on legal bills. Contractors with the professional integrity to give an honest estimate were unlikely to get the gig, because of the lowest bid law.

Re: The Scam Wall Street Learned from the Mafia

#58

Post by dkarl »

leot wrote: post #5

Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and explanations of large bank behavior are likely to be the ones closest to the truth.

It's because we don't feel comfortable telling people who wear suits and ties and working in high-rises that they're going to jail because they followed the prevailing ethics in their neigborhood. We have no problem sending black people or sweaty guys with ethnic names to jail just because they were joiners who went blindly along with the prevailing social mores in their social group, but we only send investment bankers to jail if we can prove they knowingly sunk lower than other investment bankers. We allow the Wall Street subculture to set the standard for its own behavior, and we consider that the desired normal state of things. Instead of reluctantly intervening to "send a message" once in a while when the corruption becomes too egregious to ignore, we should recognize that the complexity and lucrativeness of the finance industry makes Wall Street a natural locus of crime that requires constant attention. Just like a bad neighborhood or a bus station bathroom.

That means we need a proactive and well-funded SEC, of course.

Re: The Scam Wall Street Learned from the Mafia

#59

Post by davidw »

pja wrote: post #49
mafro wrote: post #35

Earlier quoted context omitted.

I'll give you that 75% of this article is unnecessary hyperbole which adds nothing to the central message. The central message is very interesting though.

But without the hyperbole, people won't get engaged, they won't get angry. Now, to some extent that engagement is being sought in order to sell Rolling Stone, but I think that both Matt and the Rolling Stone editors believe that they're talking about something that matters & that people should be angry about. Hence the hyperbole. If they wrote a dry academic paper and published it in some economics journal somewhere…

> But without the hyperbole, people won't get engaged, they won't get angry.

As above, "getting people angry" about stuff that is very tangentially related to hacker news is a good indication it's a bad fit for this site. There are so many other sites on the internet to discuss politics, economics and things of that ilk. In the grand scheme of things, those topics are more important than "hacker news" and could easily "crowd out" our "dry" discussions of computers and startups here.

Re: The Scam Wall Street Learned from the Mafia

#60

Post by andrewla »

kahawe wrote: post #43
leot wrote: post #5

Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. It seems the most cynical predictions and explanations of large bank behavior are likely to be the ones closest to the truth.

> Perhaps most amazing is many people's apparent assumption that banks would never engage in this kind of behavior. I was sort-of witness to a shouting match between a well educated son and his hard-working working-class rest of the family over the fact that banks give out let's say ~ten times as much as they actually have. They called him stupid, outrageous and how could any company possibly do this and they can cer…

I apologize if I misunderstand your claim (or if you are not actually supporting this claim), "that banks give out let's say ~ten times as much as they actually have". I've heard others make the claim that banks loan out more than they have in deposits, and I'm responding to that claim.

This is not true. As far as I can tell, this misconception stems from the correct notion that banking (fractional reserve banking) expands the money supply. This is sometimes extrapolated to "banks create money" and then to "banks loan out more money than they have".

Banks do not "give out" "~ten times" their deposits. They give out (for sufficiently large banks) 90% of their deposits [1] in exchange for obligations to repay. The money supply expansion that results from this (Alan deposits $100, bank loans $90 of Alan's money to Bob who gives it to Charlie who deposits it in a bank, which loans out $81 of Charlie's money to Dan, etc.) is the ten time expansion that you're probably alluding to; but the bank can't know that Charlie's money is money that it lent to Bob.

The banks are not doing anything wrong here; there's a larger argument about the societal benefits of banking, and whether banks should be restricted in how they give out their money, but starting with distorted facts makes these discussions very confusing.

[1] http://www.federalreserve.gov/monetarypolicy/reservereq.htm

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