more lessons, still

Paul Krugman writes about:

Wall Street Whitewash
The financial crisis has provided a teachable moment, all right, but not the one first expected.

His last 2 sentences are:
Never mind relearning the case for bank regulation; what we learned, instead, is what happens when an ideology backed by vast wealth and immense power confronts inconvenient facts. And the answer is, the facts lose.

W in the Middle
New York State

Paul, the lesson was - and still is - there for the learning. But you've got to lose the ideological lens.

Your last couple of sentences could've been a conservative's observation instead of a liberal's - except about ObamaCare or global warming, instead of banking.

The non-ideological lesson should be:

> That things go down in a market faster than they go up (except toward the peak of a bubble), is because the dynamic is different. Investing begets greed begets fear begets panic. And this has been the case, for a long time.

> What's different now are two things:

1. We can make things go up and down faster, using computers.

2. We can make things go up and down more often, using computers.

The first is simply running things on Internet time. The second is more insidious - it's like beating the surface of a still lake with a big paddle to create white water where there shouldn't be any. And then charging $50/day for whitewater raft rentals, instead of $10/day for canoe rentals.

With the second, financial folks no longer need big bubbles to grab the cash. They can simply keep skimming the false frothiness they create - even in a sideways market - to separate the small fish from their money.

False frothiness can take many forms.

> An overdraft fee that is several times the size of the average transaction - and engineered to trigger as many times as possible - for the same set of transactions.

> Put/call options that are several-times overpriced, because of the elegant self-consistency of Black-Scholes (i.e. if I falsely jiggle the market up and down, the price basis for options increases - which a broker can then use as evidence that options are a great investment, increasing the demand and the broker premium).

> Derivatives markets engineered - like option ARM mortgages - with exorbitant overcommissions, that become self-sustaining. Because of the army of willing brokers they enlist, who are willing to be the bad apple at the bottom of the transaction chain - while the banks point at their lawyers, rating agencies, and regulators, with the deniability borne of complexity, and say: "wewuzjustdoinwhattheysezwecoulddo".

But here's how badly we're not learning.

We'd had payday loans and company stores, for a long time.

Except now our banks are trying to attain the margin structure of payday lenders. And we continue to let them do so (there is hope - I saw the proposed fee structure for debit cards...a glimmer of daylight).

On the other hand, Walmart is the antithesis of the company store. Yet, we won't them obtain a bank charter, or sell to our poorest inner-city folks.

Go figure.

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