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October 29th, 2009 10:05 pm
Economic Exhalation
Posted by Print

It’s nice to see a piece in Time Magazine worthy of linking to. Over the last few years, Time has led the charge of weekly news magazines becoming equal parts liberal opinion journals and People Magazine derivatives. Newsweek isn’t much better (only George Will and Robert Samuelson redeem it). And U.S. News and World Report has become entirely virtual, while simultaneously losing its only compelling columnist (Michael Barone, who’s now with the D.C. Examiner).

But Time’s new issue features a piece called “What’s Still Wrong With Wall Street” by financial journalist Allan Sloan. If you can get past the purple prose of his first few paragraphs (including a breathless passage about the “green shoots” appearing in the cracked driveways of the newly impoverished) and the occasional populist nonsequitur (Mr. Sloan apparently thinks the financial crisis should relieve him of the need to pay overdraft fees), it’s worth your time.

With great analytical clarity, Sloan explains how TARP wasn’t the real bailout (new federal lending standards were); how the bonuses that the public is crowing about aren’t really bonuses; and how it was incompetence much more than greed that drove the financial collapse.  One exemplary passage:

The two divisions at AIG that brought down the firm — financial products and stock-lending — didn’t understand what they were doing. Financial products wrote credit-default swaps — sorry I’m not pausing to explain them, but most eyes would glaze over if I did — that they thought were riskless but turned out to be ultra-risky.

The stock-loan department, AIG’s other disaster, took the cash it got for lending out stock owned by AIG and invested the money in esoteric securities rather than in risk-free Treasuries, the standard practice. The idea was — I’m not kidding — to make an extra one-fifth of 1% in interest. When the esoterica, which the stock-loan folks thought was riskless, crumbled, so did the firm.

It’s an admittedly uneven piece, but the good outweighs the bad.  Read the whole thing here.

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