Don’t Call It a Subsidy, Call It an Incentive!


Just when you think you have heard it all, the bankstas and our Galtian Wall Street Overlords manage to plumb new depths of greed and criminality:

Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank’s own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating.

Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank’s money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them. The division creating the securities passed portions of their bonuses to the new group, according to two former Merrill executives with detailed knowledge of the arrangement.

The executives said this group, which earned millions in bonuses, played a crucial role in keeping the money machine moving long after it should have ground to a halt.

“It was uneconomic for the traders” — that is, buyers at Merrill — “to take these things,” says one former Merrill executive with knowledge of how it worked.

Within Merrill Lynch, some traders called it a “million for a billion” — meaning a million dollars in bonus money for every billion taken on in Merrill mortgage securities. Others referred to it as “the subsidy.” One former executive called it bribery. The group was being compensated for how much it took, not whether it made money.

The group, created in 2006, accepted tens of billions of dollars of Merrill’s Triple A-rated mortgage-backed assets, with disastrous results. The value of the securities fell to pennies on the dollar and helped to sink the iconic firm. Merrill was sold to Bank of America, which was in turn bailed out by taxpayers.

What became of the bankers who created this arrangement and the traders who took the now-toxic assets? They walked away with millions. Some still hold senior positions at prominent financial firms.

It’s ok to be speechless. I had to read it a couple times before I could believe it, and even then I had to google it to see it discussed elsewhere to make sure it was not something someone made up.

They have a solution to this kind of outright crime in China. In the United States, we have multiple wingnut welfare Republican and glibertarian publications singing their praises while an entire party and half of another is devoted to making sure we don’t dare regulate the “producers” in society.

I’m thinking China might be on to something, but I’m open to alternatives like public canings and seizing every asset and selling their families into bondage before sending them to prison.

I seriously hate these people.

113 replies
  1. 1
    Kuvasz says:

    China has it right, kill them, in public.

  2. 2
    Mike in NC says:

    I have to admit when I first heard that the Chinese charged the families of the people they executed for the price of the bullet it sounded reasonable. But I’d make it only for those Wall Street parasites with huge bonuses here in the USofA.

  3. 3
    Delia says:

    I’m waiting for the New York Times to run a sob story on how the crashed economy has affected these guys. Like maybe they had to fire one of the gardeners and give up the $3000 lunches and it makes them very depressed.

  4. 4
    Jeffro says:

    “It was uneconomic for the traders”

    Well, that right there should get our Glibertarian brethren behind the bill-for-the-bullet plan…isn’t that the highest crime possible under Randian law?

  5. 5
    Mumphrey says:

    I don’t think I’d go along with canings or selling anybody into bondage, but taking everything these assholes own is a good answer. Let these leeches try living the way millions of minimum wage-earning Americans have to live. If these guys worried that they might end up making $17,000 a year at some shitty walmart for the rest of their lives, then maybe they wouldn’t be pulling this shit so often.

  6. 6
    fasteddie9318 says:

    But Cole, these poor, suffering banksters are being insulted with the pittance of billions that they’ve been given in bonuses this year. Why can’t you stop persecuting them?

    Nothing short of a torch-wielding mob storming their headquarters and administering some frontier justice to some of these vermin is going to make things change.

  7. 7
    Jeffro says:

    Also, from the linky:

    Conscious that the growing gap between rich and poor could generate resentment, China is battling corruption and stock trading abuses. It has used the death penalty as a deterrent in some cases.

    Chinese commies are more conscious of class resentment than our Galtian overlords (which, granted, is not a high bar to clear). Who’s up for some Rosetta Stone?

  8. 8
    jo6pac says:

    Glad you’re up up to speed on ws and just think were you’ll be if you get out more in the $$$$ blogs

  9. 9
    The Dangerman says:

    I’m not big on the Death Penalty for these crimes, but I’m all for a big ass prison where these fuckers can use their talents to work off the losses (minus cost of housing them, of course); when they are back in the black in several hundred years, they can be released.

  10. 10
    Miss Mouse says:

    At the risk of being flamed, this type of behavior is already forbidden based on regulations, and it would take a really terrible group of people (not to mention a complete failure of the legal/compliance side of Merrill) to promote this type of activity.

    Merrill Lynch collapsed because of it- as it should have. Any institution with this much corruption deserves to fail.

    The way the regulations are set up, based on the licensing, these people can be found liable for their dishonest actions, but solid evidence would have to exist for that to happen. I think it would be extremely easy for a lawyer to argue that the compensation as based on performance, not as any sort of bribe, which is why FINRA and the SEC aren’t pursuing this.

    As infuriating as this story is, I’m not sure what else you’d propose and what else you would change to prevent this type of behavior. The regulations already exist and the firm imploded- I think that’s a pretty big incentive to prevent firms from doing this in the future.

    This story is awful, but as someone who works in the industry, we’re not all evil assholes. I promise.

    Flame away.

  11. 11
    kt says:

    The death penalty is too good for them. They should be immediately stripped of all assets, given cold chisels and sledge hammers and put to work, for the rest of their natural lives, “creating wealth” in a rock quarry. No early release for good behavior, no possibility of parole, no exceptions. That would put the fear of god into these pampered fuckers.

  12. 12
    Odie Hugh Manatee says:

    One of the “tools” used in the never ending War on Drugs is asset seizure which is justified on the grounds that the grower/dealer profited from their illegal acts.

    This is what they should be doing to the financial fuckers who ripped everyone off. Take their shit away and toss their asses in the can for a good long time.

  13. 13
    SiubhanDuinne says:

    I plan to buy stock in tumbrel dealerships and guillotine manufacturers. Then I’m going to learn how to knit.

  14. 14
    jibeaux says:

    @Miss Mouse:

    I’m no money whiz, but “the firm imploded — that’s a pretty big incentive to prevent firms from doing this in the future” is exactly what you might think would be true but is the opposite of true. A recurring theme throughout this whole affair is individuals acting in their own short-term interest rather than in the long-term interest of the business or in running responsible businesses which can function without bailouts. When you make huge bonuses to take on toxic risks which eventually lead to the business going belly up and being bought out by BofA which gets bailed out by taxpayers and then you get another million dollar job, um, there’s no disincentive there that I see.

  15. 15
    jrg says:

    We should poison Manhattan’s cocaine supply.

    it would take a really terrible group of people (not to mention a complete failure of the legal/compliance side of Merrill) to promote this type of activity.

    You don’t say?

    Any institution with this much corruption deserves to fail.

    “institution”, my ass. Shareholders should not get fleeced so that these crooks can make off with huge bonuses.

    I think that’s a pretty big incentive to prevent firms from doing this in the future.

    Do you honestly believe that these people care, if they are able to make off with millions? Can you not see the conflict of interest between shareholders of the “institution” and the people who are fleecing them from within?

  16. 16
    russell says:

    This story is awful, but as someone who works in the industry, we’re not all evil assholes. I promise.

    I’m sure that’s true. Some mafiosi are lovely people, too.

    Think that’s snark? It’s not.

    Flame away.

    I don’t want to see anybody shot.

    I want serious jail time for folks who broke the law.

    I want folks who violated any form of ethical practice to be barred from holding a position of any fiduciary responsibility, ever, including being allowed to participate in any financial market.

    I want the law changed so this kind of unutterable bullshit is no longer legal.

    I really don’t give a flying fuck if “not everybody” is an evil asshole. A damned lot of the FIRE sector folks are greedy, avaricious, mendacious, vicious pricks, and I want people like that the fuck out of the business of handling other people’s money.

    And I hate to break it to you since you work in the industry, but a lot of the greed and general prickishness is more or less baked in. It’s not just bad people, it’s a bad, fucked up, rotten industry.

    Finance is not a productive sector of the economy. It’s purpose is the direct capital to profitable uses. It represents, at present, a ridiculously large percentage of the US GDP.

    The FIRE sector is not pulling it’s weight. It’s a drain on the economy as a whole, and a threat to the economic stability and health of this nation and in fact to most of the world.

    Fire these assholes and make them get real jobs. And seriously, fuck them if they even think of bitching about it.

    They had a good ride. They’ve had their fun. Good times are over for everybody else, largely due to their malfeasance. Time for the good times to end for the banksters too.

    And yes, you better believe I am fucking mad.

  17. 17
    Michael D. says:

    This post is, apparently, old news. It’s the way this country works.

  18. 18
    russell says:

    We should poison Manhattan’s cocaine supply.

    FTMFW, y’all.

    Thank you.

  19. 19
    russell says:

    It’s the way this country works.

    Actually, it’s the way this country does not work.

  20. 20
    Calouste says:

    @Miss Mouse:

    I think that’s a pretty big incentive to prevent firms from doing this in the future.

    Well, maybe for the firms, but I can’t see any disincentive for the people in them who walk away with enough money to last them a few lifetimes. It’s not like the parasites banksters have any incentive to continue the life of the host bank after they have drained it dry.

  21. 21
    Fledermaus says:

    In my darker moments I think Pol Pot had the right idea. Sent them to the rice fields

  22. 22
    Walker says:

    @Miss Mouse:

    The regulations already exist and the firm imploded- I think that’s a pretty big incentive to prevent firms from doing this in the future.

    That is no incentive at all. Nothing happened to the individuals; they moved to a different firm. No one cares what happens to a firm, as long as there are always new jobs to be had.

    Unless we severely punish individuals, this activity will continue.

  23. 23
    Eric U. says:

    until we make these people accountable for stuff like this, it’s going to keep happening. Jamie Dimon has a picture of a person in a suit, but it’s cut off so you can’t see the head. That’s what it’s going to take, I’m afraid.

  24. 24
    Miss Mouse says:


    So what do you propose then? How would you rewrite the regulations?

    As satisfying as I’m sure it is to say that bankers should be publicly killed and sent to prison for hundreds of years (not your comments, but they are comments from this thread) it doesn’t solve anything.

    There are people in the industry trying to do the right thing. If you don’t believe that the industry in general is capable of that, then what would you change?

    I’d love to hear some actual policy ideas that would actually be able to get pass Congress and be signed into law. Because fantasizing about punishing bankers isn’t going to solve any of the actual problems you’re discussing.

  25. 25
    jrg says:

    @Calouste: But, but, we’ll punish the firms. That’ll show em!

    We shouldn’t just do that for finance, we should do it for all industries. For example, if a delivery man working for UPS shoots someone in the face, we should fine UPS!

    All we need to do is take personal repercussions completely out of the picture and punish institutions. Yep, that’s the way you fight criminal activity.

  26. 26
    harveyhaave says:

    Just so all of you bloodthirsty monsters know, you are violating various portions of the “Patriot Act” by calling for the death of these criminals good partirotic capaitalists, and you treasonous rat bastards should be held accountable for such. How dare you loser leaches of society try to bring down the galtian overloards of the Earth. We are in charge now, and you are just going to have to deal with it.

    I once worked on the Chicago version of wall street (LaSalle Street), and I would know these folks work very hard for their lucre. Do you have any idea how tedious it is to wait for an hour after the close for your your coke dealer? Or how much of a burden it is to have to pay that $25,000 strip club bill on the comnpany creidt card? It’s rough folks, and it isn’t getting any easier with all those ‘regulation’ and ‘oversight’ what are you all now commnunist/socialist/nazi/anarchists/unamerican/nazi/monsters want?

    It is hard, tedious, long hour work to be the galtian overlords of this country, and if you losers cannot handle it, then maybe you should move to some other socialist nation where your feminist/liberal/loser leanings will be aquesed. Do you think that trying to expense the hookers I had last night/the coke I bought is easy? You are obviously a commie.

  27. 27
    Jager says:

    @Miss Mouse:

    How many mortgages were “bundled” into each one of these securities?

    Was there a balance of good mortgages vs weak mortgages in the bundles?

    What if my “good” mortgage ended up in one of these fucking bundles, who owns my mortgage now, the “senior” owner I suppose and who the hell is that? Who is getting my payment every month?

    I send my payment to the same bank as I have for the past 5 years, have they sold my note? Have these asshats sold the paper on my house? Would I know?

    If the bundles ended up being worth pennies on the dollar, what were they doing, putting together securities that were guarenteed to fail?

    What do these teach these bastards in college, do they major in fucking up the country?

    I’m drinking, now!

  28. 28
    Bnut says:

    @Miss Mouse: So basically what you are saying is that the vast majority of bankers and traders do the right thing and don’t fuck people over. And yet here we are, mired in shit. If so many of these people are angels, where is the outrage from within? Oh right, their mouths are stuffed with bills, so they can’t speak.

  29. 29
    Walker says:

    @Miss Mouse:

    So what do you propose then? How would you rewrite the regulations?

    When a firm commits fraud, senior management should be held personally responsible regardless of whether or not we can establish individual culpability. If you make the big bucks, you are responsible for what happens under you watch.

  30. 30
    Miss Mouse says:


    Once you’re licensed with FINRA you can be held personally liable. Liable for every penny you’ve made through fraud and an additional penalty and being kicked out of the industry. There has to be evidence for those people to be found guilty of wrongdoing though, and it seems that in this case, there isn’t enough evidence to stand strong scrutiny against a lawyer who knows how to play it.

    There are thousands of crimes every day that aren’t taken to court because there isn’t strong enough evidence to stand up to scrutiny.

    What greedy bankers did to the financial system is inexcusable. But bitching about how terrible they are and wishing for Pol Pot to massacre them all, as someone legitimately did in this comment thread, doesn’t solve anything.

    Learn about the regulations that already exist and propose how to modify them. Otherwise it’s just crying over the past and nothing gets changed.

  31. 31
    Mumphrey says:

    You know, what really galls me about this country right now is that for people who did this, there aren’t any consequences. Nobody’s talking about “personal responsibility” for these assholes.

    You hear conservatives go on and on about “personal responsibility” all the time–as long as they’re talking about poor people who’ve lost their job or 17 year old girls who’ve gotten pregnant or some guy who got caught with drugs on him or some family that got behind on their payments and ended up dumped from their house out on the street. When it comes to the people with no power in this society, well, hey, these people just have to learn to take the consequences, you know? They made their beds; now thy need to lie in them. Sure, it’s tough, but, hey, if we shield people from the fallout from all their mistakes, then they’ll never learn, will they? That’s how this whole sorry tea party bullshit got spawned, by that dick ranting about not wanting to bail out the deadbeats who fell behind on their mortgages. They need to deal with the consequences of their mistakes, right?

    But when conservatives talk about the people at the top, the rich, the biggest businesses, the clowns on Wall Street, well, I guess consequences would be unseemly. It would be mean to take away their bonuses that they worked soooooo hard for and that they’re counting on. I mean, I recall what a shitstorm arose when Congress talked about asking the big banks that had gotten all that bailout money not to give bonuses. Joe Barton told B.P. he was sorry that anybody should be so nasty as to ask them to clean up the fucking mess they made that ruined thousands of people’s livelihoods.

    I know a lot of people really hate John Edwards, but I always liked him. I still do. He fucked up badly, but until I become flawless myself, I’m not going to slam him. I like him. I like him because what he was talking about back in 2004, and kept on talking about ever since until the affair came to light, was those Two Americas. And he’s right, there really are Two Americas. If you’re among the lucky few, not only do you never have to bear any of the consequences when you fuck millions of people over, you get asskissing flunkies from the Republican caucus in Congress shrieking about the unfairness of even suggesting such a thing. But if you’re some poor nobody who gets laid off from the Tyson’s chicken plant in Seaford, Delaware, or somebody like that, then it’s your damned fault you have no marketable skills–no matter that maybe you grew up poor and black and your schools sucked and you had a bad hand dealt to you in the womb. That’s just tough shit for you, buddy. Take those lemons and make lemonade. We not only aren’t going to help you out any, we’re going to demonize you for even needing any help. So fuck off.

    Well, now that I’ve depressed myself, I’m going to go to bed.

  32. 32
    Miss Mouse says:


    Done. That’s already written into FINRA and SEC regulations. But you have to be able to prove it, and it seems as though hard evidence is limited in this case.

  33. 33
    jrg says:

    @Miss Mouse:

    So what do you propose then? How would you rewrite the regulations?

    If you’re using the firm’s capital (which belongs to shareholders) to shuffle money between divisions in a company and paying commissions to the traders that broker the transactions when management knows that the stuff they are trading around is junk, that’s exactly the same as stealing from the shareholders. It’s exactly the same as walking into their houses and stealing their shit.

    If it’s not illegal, it should be. If it is illegal, the people who profit from it should be on the hook for every dollar they “made”, plus jail time.

  34. 34
    sparky says:

    @jibeaux: depends on the compensation structure. for example, if the bonuses are paid with locked up shares, options or some such other deferred compensation, if the firm goes into receivership then the bonus is worthless.

    IMO this sounds like it was really a management failure–leaving aside the ethics/legal issues, ultimately it was profoundly stupid to keep crap on your own books with, just to keep the illusion of a market going without even shorting ala GS.

  35. 35
    jrg says:

    @Miss Mouse: RICO statutes should be used. This is exactly the same sort of shit that organized crime got away with for years.

  36. 36
    WyldPirate says:

    @Miss Mouse:

    Seriiously..start cracking down on some of the motherfuckking criminals in YOUR industry. They should be taken out and fucking shot and made a public, unforgettable example of for their fucking crimes.

    they ruined millions of peoples lives. Fuck them..

    and fuck you too if you don’t like it, Miss Mouse.

  37. 37
    Walker says:

    @Miss Mouse:

    There has to be evidence for those people to be found guilty of wrongdoing though, and it seems that in this case, there isn’t enough evidence to stand strong scrutiny against a lawyer who knows how to play it.

    And that is the problem. The very nature of firms is such that you can clear as the sky evidence of fraud at the firm level, but individual blame is completely obscured.

    This is why we have to restrict limited liability so that individual management is automatically held responsible for certain (but not all) violations of law at the firm level. In the past centuries, countries were much tighter with the concept of limited liability. The abuses of recent decades suggest that we should revisit this idea.

  38. 38
    dirge says:

    So, the way this is supposed to work, is that the stockholders and bondholders, discovering systemic fraud, call emergency meetings, out for blood. The management, having no other choice, unleash the full fury of one of the world’s most brutal legal departments. The super-senior debt holders, being more old-school, start hiring “contractors.”

    Anybody within a mile of this thing winds up the legal and financial equivalent of a smoking crater. Anyone directly involved goes to jail if they’re lucky, or goes to the Chinese black market in a dozen styrofoam coolers if they’re not. The investors get back some small portion of their massive losses.

    Of course if we could reasonably expect the investors to take massive losses instead of getting bailed out, and if we could expect management to give a shit what the investors think, then none of this would’ve happened in the first place.

    Sounds dry, I know, and nobody is very sympathetic to the investors, but if you can fix the corporate governance issues, a lot of this crap would stop.

  39. 39
    Karmakin says:

    A big part of the problem is that high wages/bonuses are a serious moral hazard issue. You make someone basically independently wealthy, they’re not that concerned about the long-term health of the company, because they’re basically set.

    But if you want some suggestions…

    #1. Wages and bonuses above X amount (I’d say tie it to the median income) go into a 10-year trust. This gives a fund where if if everything goes south, then the trust can be reclaimed, it gives a financial incentive in ensuring long-term stability.

    #2. Fraud involving consumer debt result in the debt being wiped out. Quite frankly, regardless of everything else, this needs to be done.

    #3. Give veto power to people regarding the transfer of their mortgages/mortgage servicing.

  40. 40
    Miss Mouse says:


    I have absolutely no problem with this. Actually getting it to be enacted is problematic, but I’m fine with this. I’m not against regulation- I actually very much support it. But as much as I love this blog, wishing for violence and painful deaths for bankers really isn’t a productive conversation.

    You all are pissed about what happened? I am too. So find a way to either go after these guys with solid evidence, or propose better regulations to fix it.

    Pol Pot? REALLY?

  41. 41
    Miss Mouse says:


    Really? Taken out and shot in public for their crimes? Crimes that they haven’t been tried for in court? Who gets shot? Anyone working in the financial industry? Anyone in a nice suit?

    This is the exact kind of hateful argument that I hear conservatives using all the time. “Illegals should be taken out and shot as an a example- they’re breaking the law!” “Young bucks buying T-bone steaks- take them out and shoot them and stop supporting the welfare state!”

    I generally think very highly of Balloon Juice users. This thread makes me sad.

    But that’s cool- let’s hate on the bankers instead of coming up with actual solutions. That will really hurt their fee fees and maybe they’ll give some of their money back.

  42. 42
    Villago Delenda Est says:


    “Moral hazards”, once again, only apply to the little people.

    Not the Masters of the Universe.

    Heads need to roll. The blood of these Ferengi maggots needs to flow in the streets like water.

    It’s glaringly obvious that nothing will be done to the individuals involved under the current system. They will skate, clear to Aruba, and say “so long, suckers!” as they board the plane.

  43. 43
    Villago Delenda Est says:


    “Moral hazards”, once again, only apply to the little people.

    Not the Masters of the Universe.

    Heads need to roll. The blood of these Ferengi maggots needs to flow in the streets like water.

    It’s glaringly obvious that nothing will be done to the individuals involved under the current system. They will skate, clear to Aruba, and say “so long, suckers!” as they board the plane.

  44. 44
    PeakVT says:

    Jump, you fuckers, indeed. However, I’d settle for seppuku.

  45. 45
    Jamie says:

    Wow, hanging is too good for this bunch. It may be time to go back to drawing and quartering these miscreants.

  46. 46
    Miss Mouse says:


    I agree that it’s a serious moral hazard issue, and I think your idea #1 is excellent.


    On that note, I’m done for the night. I think that we can battle evil bastards without wishing holocaust on them, without saying they should be shot point blank in public, and without being hateful. I also think the liberal message would be much more effective if we could discuss it all like rational adults. I’m pissed too about what happened. So let’s solve it instead of wishing horrible, painful deaths for wrongdoers.

    John Cole, I bet you love me after this thread. I did good, right?

  47. 47
    Bnut says:

    e @Miss Mouse: Get emotional over hyperbole much? We have yet to hear YOUR solutions on how to save the 99% angelic wall street market. I could give you 100 ways on how to fix the military, but all you want to do is remind us that you made your money fairly, and so did your friends. Got any advice for us outside suckers?

  48. 48
    jrg says:

    So find a way to either go after these guys with solid evidence,

    Why, yes, I just happen to have some of Merrill Lynch’s internal documentation right here. I’ll get on that.

    or propose better regulations to fix it.

    I think @Karmakin has the right idea.

    On top of that, finance attracts some very smart, but very shitty people. I’m not a lawyer or a financial expert, but it does seem to me that if you tell these people what they can’t do, they will only find another way. So, it’s probably smarter to explicitly spell out what they can do, and make everything else off limits.

    For example, perhaps they should not be allowed to trade securities for the benefit of their own firm at all. In this case, they certainly should not be allowed to purchase the securities they were acting as an investment banker for.

    There needs to be a separation between investment banking and trading (either for the benefit of the firm, or for the firm’s clients). We need to bring back the Glass–Steagall Act.

  49. 49
    Elia says:

    @Miss Mouse: you lost me when you said “that could pass Congress”

    either you’re arguing in bad faith or you’re stupid.

  50. 50
    Jamie says:

    OK has anyone of these con men seen the inside of a jail yet? And if not, why not? Sometimes you have to look at th epast to make better plans for the future. Something about moral hazards.

  51. 51
    jrg says:


    Got any advice for us outside suckers?

    Buy index funds. They’re not safe from systematic risk, but since they are not managed, the fees are low, and some shithead fund manager is not going to use them to rip you off.

  52. 52
    Elia says:

    It won’t let me edit my last comment, so I just want to clarify:

    1. I agree that violent fantasies are pointless and more than a bit unseemly

    but 2. I don’t think it’s fair to use Congress as the bar by which the reasonability of proposed legislation is measured — at least not until we’ve got campaign finance reform (and, while we’re at it, I’d like a pony).

  53. 53
    Odie Hugh Manatee says:

    @Miss Mouse:

    I know the question wasn’t aimed at me but…

    The regulations don’t work and the criminal standards are too high if the system failed us (and it did). Regardless of existing law, crimes were committed and people are getting away without consequences.

    Congress can do something but they won’t. Until the benefits of actually doing something outweighs the cash they rake for not doing anything, Congress will not budge and that’s where we are today. Criminals are running free and fucking over the world of finance and our economy, all because they have paid enough in protection money to our congresscritters.

    You can expect congressional hearings on these problems but only after everything has crashed and burned. That’s just the way our system is ‘wired’.

  54. 54
    Jamie says:

    and yes Miss Mouse sending all of these lads to jail for a very long time may make the next financial genius think about his scheme before he springs it on the rest of the world. Otherwise we should give up on this system we’re all living in.

  55. 55
    Bnut says:

    @jrg: Thanks, it was sort of a larger question, but I’ll file that away lol. My father worked for 3 decades in the financial sector and his advice was to move to New Zealand.

  56. 56
    Ailuridae says:


    For a better explanation of why read A Random Walk Down Wall Street.

  57. 57
    Odie Hugh Manatee says:


    You have to have a sense of honor to do that. These assholes have none.

  58. 58
    jrg says:

    @Ailuridae: I have. I believe in efficient markets too (and diversification, re-balancing, dollar cost averaging, etc), but my primary motivation for buying index funds is the fact that I don’t trust money managers. I have close ties to that industry – familiarity, for me, has bred a great deal of contempt.

  59. 59
    Gary Farber says:

    Is there something broken in the HMTL on this thread, or is it just my computer, running Vista Build 6002, and trying on Firefox, IE and Google’s latest non-betas?

    I’m not seeing any problem in other posts’ threads.

    Or is it just some temporary quirk, or just me?

    Also, not seeing “puppies” here:

    “Puppies” in BJ language means?

  60. 60
    Ozymandias, King of Ants says:

    @Miss Mouse:

    There has to be evidence for those people to be found guilty of wrongdoing though, and it seems that in this case, there isn’t enough evidence to stand strong scrutiny against a lawyer who knows how to play it.

    I seem to remember that the next big thing from Wikileaks was supposed to be super-scandalous information about a major US bank? That ring a bell for anyone else?

  61. 61
    jrg says:

    @Gary Farber: I don’t see anything wrong with the thread using Firefox or Chrome on Windows 7.

  62. 62
    Gary Farber says:

    “@Gary Farber: I don’t see anything wrong with the thread using Firefox or Chrome on Windows 7.”

    And now it’s not broken for me, either.

    Is this unusual, or usual, on Balloon Juice in the last couple of years?

  63. 63
    Ailuridae says:

    The bigger problem here is that enforcement after the fact is incredibly problematic. Yes, what Merrill did was plainly illegal and yes they no longer exist and yes, in theory you can take back money earned by individual traders and managers in these schemes. But where does that leave anyone? Should CALPers lose a ton of money because Merrill is run by snakes>

    Isn’t it far easier to do the regulation up front? When Merrill was proposing this scheme who approved it? Did the Federal Government directly do so (I would lay serious odds that no they didn’t). So who did? After the Enron scandal a lot of people pointed out that private auditing firms paid by the firms they audit is silly. And few listened.

    Now a decade later private bond rating firms paid by the firms whose bonds they rate aren’t receiving enough blame for their role in a financial collapse. And few are listening.

  64. 64
    Ailuridae says:


    That was meant to be addressed to Bnut who asked the question.

    I remember taking to a Merrill trader’s assistant a long time ago about their retail brokerage. She was relaying at a meeting on pricing customer buying price points that “we only take a quarter on the customers we like”

  65. 65
    jrg says:

    @Ailuridae: True. One of the most frustrating things about it is the fact that nothing is safe, not even cash (inflation can be a danger). So where do you put your money? Hell, we try to induce inflation when it’s not present.

    Sometimes I understand where the Teabaggers are coming from when they throw a fit about the Fed. It really does feel like the game is rigged (yes, I understand that some level of inflation is healthy). I just wish they’d take their heads out of their asses about who’s really screwing investors and working people. Instead they chant mindless slogans about the “free market”, not realizing that lax regulation is fucking this country in the ass.

  66. 66
    Jager says:


    You must know my brother

  67. 67
    The Republic of Stupidity says:


    When you make huge bonuses to take on toxic risks which eventually lead to the business going belly up and being bought out by BofA which gets bailed out by taxpayers and then you get another million dollar job, um, there’s no disincentive there that I see.

    I believe it’s called ‘moral hazard‘…

  68. 68
    AnotherBruce says:

    @Miss Mouse: Please, this is bullshit, these crimes are prosecutable, it’s just that the SEC is captured by these rotten assholes and has been for decades. They aren’t going to do anything about it until they are prosecuted themselves. The laws are written well enough, but there is nobody out there with the courage or integrity to enforce them.

  69. 69
    Dennis SGMM says:

    The lack of action on this, and a lot of other things, reminds of the buffalo. The buffalo was nearly eradicated by white hunters because it was dumb. A group of hunters could set up a stand within range of a buffalo herd and just shoot them dead until they had as many as they could skin. A buffalo would be shot and the others in the herd would just continue to graze. We see our neighbors go under and, as long as we’re not the ones going under we just continue to graze.

    Bang! Bob and Janice lost their home. They tried to get the bank to lower their payments but, no luck.

    Bang! Those nice people up the street are declaring bankruptcy because she got cancer and they could no longer pay the medical bills.

    Bang! His unemployment insurance ran out so they’re going to try and nurse the car to her parents’ home back East.

    Once you descend past a certain point you’re incapable of doing anything but trying to survive. The pols know that. They also know that no matter what, we will continue to elect either Republicans or Democrats. Bang!

  70. 70
    lol says:

    If only someone had proposed a Shareholder’s Bill of Rights…

  71. 71
    Triassic Sands says:

    I seriously hate these people.

    Why, John? They’re just rich people playing a game created by rich people for rich people to get richer. As long as they play by the rules — made by rich people for the benefit of rich people — how can we criticize them? If we were good people, we too would be rich and then we’d understand.

  72. 72

    I’m against capital punishment, so I can’t even wish it for these asshats. That doesn’t mean I don’t think drawing and quartering a few of them in a public square in NY wouldn’t do wonders for stabilizing our financial sector. However, that’s just a pleasant fantasy. To tell the truth, I don’t even want to send them to prison. I can think of a much more suitable punishment. They should be stripped of their assets. Any assets that are left should be placed in an untouchable trust for the length of their sentence. Then they should be fitted with an ankle bracelet to monitor their movements. They should be assigned to work as a janitor at a non-profit organization and paid minimum wage. They should also be forced to live in public housing. The public housing and all of their needs, except for medical should come out of their earnings. Length of sentence should be dependent on crime. I think most of them would find this to be the equivalent of being sent to hell. A nice side benefit would be that we wouldn’t have to pay to keep them in prison.

  73. 73
    Lupin says:

    Hello, banker speaking again.

    I just finished buying Sardinia with my bonus (it’s tax deductible too) when your constant yapping interrupted my 12-hour lunch.

    Can’t you get it through your microscopic skull that we laugh at you and the other soylent serfs? What are you going to do? Whine on the internet, ooo my feelings are sooo hurt.

    Don’t forget to watch American Idol and sign that organ donor card. I might need your kidney. Nah, I was joking. I don’t need your signature.

  74. 74
    Odie Hugh Manatee says:


    Finally, some honesty!

  75. 75
    Triassic Sands says:

    @John – A Motley Moose:

    I’m against capital punishment…

    Yes, but are you against shooting rabid dogs?

  76. 76

    @Triassic Sands: If we start killing people for being greedy then we’re going to have to kill off at least half of the human race.

  77. 77
    Triassic Sands says:

    @John – A Motley Moose:

    I too am against capital punishment (and torture), but, damn, some of these people really push it.

  78. 78

    @Triassic Sands: They certainly do that. Whenever something like this happens I think about something that is almost never mentioned in the media. People die. Whether it is from a suicide or lack of health care caused by lack of money or some other cause of death, it is still attributable to the actions of these thieves. Whenever a corporation covers up dangerous products, like PG&E hexevalant chromium (sp?) or a drug company covering up negative test results, people die. Why the hell aren’t corporations charged with wrongful death or even first degree murder? I’m all for the death penalty in those cases. The corporation should be put to death.

  79. 79
    burnspbesq says:

    Y’all think nothing can be done?

    Y’all think nothing is being done?

    Follow this link, then come back and tell me you still think that.

  80. 80
    burnspbesq says:

    I’ve said it here several times, and I’ll say it again.

    There is one relatively simple way to clean up everything in the financial sector that you think is illegal, immoral, or fattening.

    Require every broker-dealer and investment advisory firm to be a general partnership. If every member of the firm has unlimited personal liability for all of the firm’s obligations, you will see risk management on a scale previously unknown in the history of mankind.

  81. 81
    Michael says:

    @Miss Mouse:

    As infuriating as this story is, I’m not sure what else you’d propose and what else you would change to prevent this type of behavior. The regulations already exist and the firm imploded- I think that’s a pretty big incentive to prevent firms from doing this in the future.

    Executing them, imprisoning their spouses and mistresses in brothels for the masses and sending their spoiled children to re-education camps would be a good start.

  82. 82
    Michael says:

    @Miss Mouse:

    There are people in the industry trying to do the right thing. If you don’t believe that the industry in general is capable of that, then what would you change?

    Wipe it out. I’m not pumping any more of my cash into your cas!no floor.

    “Professionally managed investments” my ass. Your industry’s “professional managers” haven’t been even able to track, much less beat, the indices on my funds. How the fuck does that happen?

    Assuming that my clients manage to cobble together enough cash to rise somewhat and actually start paying me more or less on a schedule, I’m paying off debt, buying kids houses and then will buy moderate rental properties to hold over a long term. No gimmicks, not anymore.

    Fuck your industry. When you’re at the office Christmas party today, just be thankful that me and a big bottle of Jim Jones punch sweetener haven’t been at the goodies.

  83. 83
    Michael says:

    @Miss Mouse:

    Who gets shot? Anyone working in the financial industry? Anyone in a nice suit?

    Pretty much. The thought makes me smile inside, like rainbows, puppies and kittens.

    This thought, by the way, should worry you, as I used to be a conservative activist up until about 2005.

    My chops in “the movement” were pretty deep, until I realized what a fraud it was.

  84. 84
    p.a. says:

    maybe McMeagan will pen a comment about how, oh well, the invisible hand will take care of this sort of thing, within a generation or two. patience, John.

  85. 85
    Michael says:

    I interrupt my inchoate sense of rage to bring you this nugget from burns’ weak sauce financial industry coddling link:

    Goldman Sachs’ high frequency trading system generates millions of dollars per year in profits for the firm. Goldman Sachs takes several measures to protect the system’s source code, including requiring all Goldman employees to agree to a confidentiality agreement.

    This was the software theft verdict. And yes, the guy was a thief. But the observation I have is this notion that a support platform “generates millions of dollars” in profits should have led to Goldman indictments for skimming the info ahead of other bulk trades. The DoJ boys have the info, and after all, the thief was just stealing from even worse thieves.

    Anybody care to guess why nobody at GS is getting indicted for this?

  86. 86

    Looks like the Chinese were serious about corruption. The story had a happy ending.

  87. 87
    Maude says:

    Inc. saved the day for the financial sector.
    Plus the 2 Clinton laws that opened the barn door.

  88. 88
    Caz says:

    Without bailouts, shareholders will eventually get wise to this kind of behavior and hold firms accountable for shady practices. And allowing firms to sow what they reap, i.e. allowing them go belly up without taxpayer money, will weed out the weak and stupid and the stronger will take up the slack.

    Basically, free markets do solve everything. It takes time, and it takes responsible gov’t to stay out of the way.

    The only crime that I see being committed is the lack of disclosure and dishonest accounting, and if they violated those laws then yes they should be punished. But punishing them for taking insane risks? No. And the shareholders who got hurt, they took a risk too by investing in these companies. If you allow the risks to play out, the free market becomes stronger. If you subsidize it and shift the risk, you get unnatural selection and the problems persist.

  89. 89
    "Fair and Balanced" Dave says:

    For the first time in my life, I’m beginning to understand why French peasants cheered so loudly every time the guillotine blade fell on the neck of an aristocrat.

  90. 90
    Omnes Omnibus says:

    @burnspbesq: I completely agree.

  91. 91
    iLarynx says:

    Sentiment gathered from John:

    If they don’t start jumping, there will be pushing.”

  92. 92
    agrippa says:


    Thanks, but no thanks.

    not buying, sorry

  93. 93
    russell says:

    Learn about the regulations that already exist and propose how to modify them.

    Look, IMO you are being willfully naive.

    Regulations to prevent the kind of risk-taking that contributed to the current cockup existed for decades. They were removed.

    Attempts to reform the financial sector have been met with un-fucking-believable resistance, funded by the financial sector.

    The legislative and regulatory institutions in this country have effectively been captured by the financial sector.

    The collapse of the financial markets was caused by people fucking lying. They lied about what properties were worth, they lied about the value and risk profile of the securities they cobbled together from the shitty mortgages, they sold credit default swaps promising to pay money they did not have and could not, in a million years, get if the value of the paper they were hedging against dropped.

    Lies, lies, and more lies.

    Millions of people – millions – have lost their jobs, homes, health insurance, retirement savings as a result. Millions of people, fucking ruined, by the greedy pricks we are talking about here.

    Millions of people, fucking ruined, so that a few thousand swinging dicks can make themselves stupidly, obscenely rich. That is the reality.

    And I will leave aside the fact that most of these people are working for publicly traded corporations, which means not only are the assets they are speculating with not their money, the profits from their speculation are not their money either.

    It’s not their money.

    The burden is not on the rest of us to carefully parse which of these chiselling assholes broke which specific part of which specific law, and in what way.

    The burden is on folks in the financial sector to explain why they should not have the gains they’ve made stripped away, why they should not go to jail, why they should not be barred from participating in financial activities ever again, and why the companies they work for should not be shut down and sold for scrap.

    The burden is on them, not us.

    Seriously, the person who needs to get some perspective here is you.

    Basically, free markets do solve everything.

    Even Alan Freaking Greenspan doesn’t believe this anymore.

  94. 94
    slag says:

    Diggin’ these links to Publicola and McClatchy! FWIW.

  95. 95
    Chris Andersen says:

    This is nothing more than the kind of behavior you see from your typical embezzler: Steal some money, then keep shifting what’s left around in order to hide the original theft. Once you start down that road you can’t go back because to do so would requiring admitting to the original theft. So you tie up more and more assets into the theft-hiding schemes. And, when the cover finally comes off, not just the initial theft is revealed but also all the crap that was done to hide it.

  96. 96
    Geeno says:

    I’ve said it before, and I’ll say it again. There aren’t enough lamp posts and piano wire for these assholes.

  97. 97
    Geeno says:

    These guys like to talk about the Puritan work ethic so much. We could do what the Puritans did and seize the assets of the executed criminals.

  98. 98
    Lurking Canadian says:

    I must be unusually dense today, because I can’t even understand the scam from Merill’s perspective. They’re holding a bunch of unsellable trash, so their solution was to create a branch office of Merill Lynch to “buy it” and pay bribes to get the guys at the branch office to to do? So now, Merill Lynch is still holding unsellable trash and they’re out the bribe money, too?

    Then…uh…PROFIT? Is the underpants gnome involved somewhere? Is the issue that they couldn’t sell the other tranches of these bond issues without a “buyer” for this stuff?

  99. 99
    catclub says:

    A great improvement, yes.
    Magic solution to all ills – not so much.

    It is likely that all the big firms WERE gen’l partnerships in 1929. Did not completely solve the problem.

  100. 100
    catclub says:

    @Chris Andersen:
    Reminds me of some motto about “it’s not the crime, it’s the coverup.”

  101. 101

    […] Represents New Depths of Greed and Criminality, charges John Cole at Balloon Juice: “In the United States, we have multiple wingnut welfare […]

  102. 102
    Caz says:

    It seems like the lot of you feel the following should replace the free market principles that made this country the greatest ever created:

    1) When investors buy stock in a company, and that company engages in risky behavior which results in huge losses or even bankruptcy, neither the company nor the investors should have to suffer losses. The company’s directors should be held criminally responsible for engaging in risky behavior. Also, the government should take money from taxpayers and redistribute it to the shareholders and the company so that the losses are mitigated.

    2) Companies should have to get approval from the government beore engaging in risky behavior.

    3) The government should take taxpayer money and invest in failed companies so that the companies can continue to operate, and recovering the investment of taxpayer funds should be the second priority behind the first priority – propping up the company.

    4) It is damaging to our country to allow large corporations to fail.

    5) When the government fails to properly investigate corporate crimes, and those crimes result in losses to investors and the company itself, the company is held liable. However, although liable, the company should be bailed out so that it doesn’t go under.

    Seriously, folks, let the free market operate without government interference and all these issues will be addressed naturally. Those who takes risks will assume responsibility for their own actions, and those that are weak and stupid will fail, giving way to those that are strong and smart.

    It’s not that complicated, people!

  103. 103
    agrippa says:


    No thank you.
    not buying

  104. 104
    Caz says:


    Any particular reason you’re not buying, aside from my simply being “wrong?” How about telling me why you’re not buying it instead of just categorically saying “no.”

  105. 105

    1) Nonsense. TARP was brought to us by G.W. Bush.

    2) It depends on whether the effects of that risky behavior will affect people that have no part in the company. If the only ones actually taking a risk are the stockholders and the company then let them go for it. This gets us into ‘too large to fail’ territory.

    3) ‘Too large to fail’ is the culprit here. As it is with the rest of your questions.

    4) TLTF

    5) TLTF

    You put forward a very good argument for regulating business. We were warned about the power of corporations by Jefferson and Madison. Teddy R. broke the trusts of his day. The government broke up AT&T. We should have listened and learned from history. Now corporations are large enough to take down whole countries. It’s time to do some modern trust busting and to limit mergers and acquisitions. We can’t keep letting the bigger fish eat the little ones. Pretty soon there won’t be anything for them to eat but each other.

  106. 106
    dirge says:


    Basically, free markets do solve everything.

    He’s not buying because you said that. I’m guessing you’re exaggerating for effect, but it’d probably help if you said so.

    As I said up-thread, what should’ve happened here is that the stockholders should’ve gone berzerk, sued the bad actors into oblivion, but still lost money. Lots of people should’ve been banned from the industry by the SEC. Probably some people should’ve gone to jail in cases of clear fraud.

    That would have been evidence of the free market working. It didn’t happen because government regulation of the market, particularly in the area of corporate governance, is dysfunctional so management can just ignore and rip off the stockholders.

    So I think we need regulatory reform in order for the free market to solve this problem. If you can get on board with this analysis, you might get a slightly more sympathetic hearing.

    If you really think that the free market is going to solve everything in the total absence of regulation, you’ve lost even me.

  107. 107
    Jebediah says:

    @Miss Mouse:
    Still working my way through this thread, but I had to jump in now to have a little shouting fit.
    Would you please fucking just STOP trying to get people to stop venting? I am unbelievably furious that these fucking criminals sank our fucking economy. My blood boils at the thought of these criminal enterprises trying to foreclose on a guy who DIDN’T HAVE A MORTGAGE. My spleen swells when I think of all the people who were told by their bank “miss a payment so you can trigger assistance/modification/whatever” – and got a foreclosure rammed yup their asses for the crime of listening to their banker.
    If writing blog comments about heads on pikes gives me a few seconds of venty goodness, I’ll fucking take it. Your fucking industry owns the Senate, so we all know how little chance there is of real reform.
    No, I don’t have the solution, and yes I am still going to yell about how pissed i am, even if that isn’t going to fix the problem.

  108. 108
    Suffern ACE says:

    @Caz: We’re liberals in general, not CEOs. What you described in 1, 3-5 is what the heads of large corporations want. 2 doesn’t apply to this case anyway since what Merrill was doing was hiding the fact that there was no market for its MBSs. That’s not risk taking.

    It would be nice if these were just soured investments, and it would have been nice if the firms would have had reserves to cover their losses, or even knew what their losses were. I do believe the market had it right when it said that it was tired of big financial firms and sent their stocks prices into la la land and refused to provide them any more capital until they cleaned their balance sheets and/or got the backing of the government for those assets. It also would have been nice if all those firms wouldn’t have failed at the same time, so that there would have been some kind of assurance that in October 2008 that there would be some kind of credit market. But it sure didn’t look that way at the time.

    Makes sense to me that we need a financial system. Don’t talk to me about well functioning markets when the practices of the banks lead them into insolvency all at the same time. The “all at the same time” is what we don’t want to happen. Individual banks can die off.

  109. 109
    postmodernprimate says:

    @Miss Mouse:

    Once you’re licensed with FINRA you can be held personally liable. Liable for every penny you’ve made through fraud and an additional penalty and being kicked out of the industry.

    Relax everyone, FINRA is on the beat…

    Harry Markopolos, the famously ignored Madoff whistleblower on FINRA:

    “… FINRA is definitely in bed with the industry.”

    “I’d give the SEC an A+ for incompetence and FINRA an A+ for corruption.”

    “FINRA is a self regulatory agency which is supposed to oversee the broker dealer community. It invested in sectors of the market it was charged with regulating. It invested in risky instruments including hedge funds, funds of funds, ARSs, etc. It has one foot on Wall Street and one in Washington. While FINRA’s supposed to regulate, overwhelming evidence indicates that it served more at the behest of the industry. Even though it is a nonprofit, non-government agency, FINRA paid its executives extremely well with a number of executives making million dollar, if not multi-million dollar, compensation. Additionally, FINRA is anything but transparent.”

  110. 110
    Nathanael says:

    No, no, be humane. Selling their families into bondage and slowly torturing them to death is not humane. China is doing the humane thing.

    (Perhaps you’re one of the people who will understand when I say I support execution because I believe in being merciful…. and some people deserve far, far worse than death.)

  111. 111
    Nathanael says:

    What jibeaux said in #14. A recurring theme here is that the individuals who tanked Merrill Lynch, after cheating millions of investors out of God only knows how much — they walked away with large profits and went on to loot the next company.

    Having the company collapse was no disincentive for them. The corrupt culture of Merrill Lynch continues as part of Bank of America, which is corrupt to the core, having made a practice of merging corrupt businesses into itself.

  112. 112
    Nathanael says:

    For #98: I can tell you what you’re missing.

    The people within Merrill Lynch pulling this shit were getting paid according to how many deals they turned over. They collected their bonuses, and if the firm collapsed, no skin off their back.

  113. 113
    Nathanael says:

    “Without bailouts, shareholders will eventually get wise to this kind of behavior and hold firms accountable for shady practices”

    We did. Why do you think financial stocks all cratered in 2008? The crooks running the companies — remember, in the US, directors are appointed by the CEOs — don’t give a damn about the shareholders. If they get uppity, the CEO will have the board hand out a few billion more shares to him and his friends so he can retain control. Anyway, the crooks promptly went to the government and demanded bailouts, against the intense resistance of investors….

    ….but George W. Bush and Henry Paulson said “damn right we’ll bail you out!”

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